Insurance Law Hawaii

Deceptive Practices, Punitive Damage Claims Dismissed in Property Damage Suit

    The insured's claims for breach of contract and bad faith remained while his claims for deceptive practices and punitive damages were dismissed. Fishberg v. State Farm Fire & Cas. Co., 2021 U.S. Dist. LEXIS 135043 (S.D. N. Y. July 20, 2021).

    The insured rented a apartment. He was insured under a Renter's Policy issued by State Farm. The policy covered direct physical loss cased by windstorm or hail. The policy also provided coverage for additional living expenses if the residence became uninhabitable. 

    In August 2019, the ceiling of his apartment collapsed due to a windstorm. A water leak occurred from the roof due to a severe rainstorm. The insured's personal property was damaged. The insured also lost use of the apartment and he was forced to expend monies to repair, remediate and restore his personal property. State Farm denied the claim,

    The insured filed suit alleging four causes of action: (1) State Farm failed to timely investigate and adjust the claim in good faith; (2) consequential damages in the form of the costs of medical bills, loss of monies and loss of use of the apartment as a residence as a result of State Farm's failure to investigate and adjust the claim in good faith; (3) materially unfair and deceptive acts and practices in violation of a New York statute; (4) State Farm engaged in wilful and wanton misconduct and denied the claim after failing to investigate, adjust, and pay the loss in accordance with the policy, justifying punitive damages.

    State Farm moved to dismiss counts two through four. Regarding the second count, New York courts recognised that an insurer's handling of a claim could breach its duty of good faith and fair dealing. The court disagreed with State Farm that the second cause of action alleged the same conduct as the first cause of action, The first cause of action addressed the denial of insurance coverage. The second cause of action addressed the process whereby defendant reached that result - the claim that it did not send an adjuster to the property. Therefore, the second cause of action could not be dismissed as duplicative off the first.

    For the third cause of action, the insured alleged that State Farm's website described its renters insurance and claimed coverage was provided for windstorm, hail, and water damage from plumbing. The insured argued this would lead a reasonable person to understand that the policy would cover losses such as those sustained by the insured. However, the insured did not allege what precisely the loss he suffered was and what language on the website would lead a reasonable consumer to believe that the insurer would automatically agree to extend coverage to an insured upon notice of claim without determining for itself whether the loss was covered or not. The allegations did not state a claim under the New York statute.

    Turning to the fourth cause of action, New York did not provide an independent cause of action for punitive damages. The insured did not defend the fourth cause of action.

    The insured also sought an award of punitive damages in connection with his second, third and fourth causes of action. But the insured pled mere conclusions not supported by any facts. The insured pleaded no more than that his claim was improperly denied after insufficient investigation, which was not enough. 

 

Pollution Exclusion Bars Coverage for Golf Course's Gasoline Leak

    The magistrate recommended that the policy issued to the club's groundskeeper  containing a Pollution Exclusion provided no coverage for a gasoline leak. Glocester County Club v. Scottsdale Ins. Co., 2021 U.S. Dist. LEXIS 149666 (D. R.I. Aug. 5, 2021). 

    The groundskeeper, Mr. Simonelli, was in charge of maintaining Glocester County Club's (GCC) greens. He applied for a policy from Scottsdale and described the operations as "Pesticide/Herbicide for golf greens." GCC was identified as an additional insured. The application stated that it was the basis of the contract should a policy be issued. 

    The policy was issued with a Pollution Exclusion barring coverage for property damage arising out of release or escape of pollutants. The policy also included a Pesticide Endorsement. 

    GCC stored gasoline to fuel thirty pieces of equipment, including golf carts. Nine pieces of equipment were used for pesticide and herbicide application operations by Mr. Simonelli. The gasoline tank began to leak and contaminated the soil and ground water on GCC's property and that of its neighbor. The state notified GCC that it was responsible for remediation. GCC also agreed to to pay the neighbor's claim.

    GCC then turned to Scottsdale. The claim was denied based on Pollution Exclusion. Scottsdale determined that the Pesticide Endorsement was inapplicable because it applied only to ongoing operations arising out of pest control services and the leak did not occur in connection with the performance of such services. GCC sued and cross-motions for summary judgment were filed.

    GCC agreed that the Pollution Exclusion was potentially fatal to its claim. But GCC relied upon the Pesticide Endorsement because the vehicles Mr. Simonelli used for pesticide application needed gasoline and were fueled from the leaking gasoline tank. 

    The court determined that the Pesticide Endorsement would only be applicable if the Pollution Exclusion was ignored. The court considered the meaning of "operations" in the Pollution Exclusion. The dictionary definition was "performance of a practical work or of something involving the practical application of principles or processes." The policy's "Description of Operations" stated in the Pesticide Endorsement was "Pest Control Services." Therefore, the term "operations" was not ambiguous. It was limited to Mr. Simonelli's pest control services and did not extend to the general operations of the golf course for which the leaking gasoline tank was used. Further, in the application, Mr. Simonelli described the "operations" as "Pesticide/Herbicide for golf greens" and specified that the "operations" did not involve the storing of hazardous materials, for example in a fuel tank. 

    Here, the pollution discharge did not occur contemporaneously with Mr. Simonelli's performance of his pest control service operations. Nor was GCC's loss due to a discharge of gasoline brought by Mr. Simonelli to the premises on which the leak occurred "in connection with" Mr. Simonelli's performance of pest control service operations. 

    The Pollution Exclusion was clear and barred coverage for environmental contamination caused by a pollution discharge that occurred on premises owned or occupied by GCC. Therefore, the magistrate recommended that summary judgment should be issued in favor of Scottsdale, which GCC's motion should be denied.

    

Insurers Litigate Subrogation, Contribution Dispute

    The court largely denied one insurer's motion to dismiss subrogation and contribution claims raised by another insurer. Zurich Am. Ins. Co. v. Aspen Spec. Ins. Co., 2021 U.S. Dist. LEXIS 148739 (D. Nev. Aug. 6, 2021).

    Both Zurich and Aspen issued policies to Cosmopolitan Hotel and Casino for an incident that occurred at the hotel's nightclub. Two guests sued Cosmopolitan when they were attacked by employees. Cosmopolitan tendered to Aspen. Aspen controlled the defense, including the handling of settlement negotiations with the underlying plaintiffs. An offer of $975,000 was made by the underlying plaintiffs. Zurich insisted that Aspen settle within the available limits, but Aspen refused. The lawsuit later settled for $1.4 million, with Aspen contributing $988,000 and Zurich contributing $323,187.66 under a reservation of rights. Cosmopolitan also contributed to $88,812.34 to the settlement. 

    Zurich then sued Aspen for subrogation and contribution. Aspen moved to dismiss. Regarding Zurih's claim for equitable subrogation, the federal district court determined that Nevada would follow California law. Zurich plausibly alleged that Cosmopolitan suffered a loss for which Aspen was liable. Zurich alleged that Aspen breached its duty to accept a reasonable settlement demand, thereby causing a later settlement that exceeded Aspen's policy limits by over $300,000. Cosmopolitan would have been liable for this amount had Zurich not stepped in.

    Zurich next argued that the claimed loss was not one for which Zurich was primarily liable  because (1) Zurich's policy responded after Aspen's and (2) Aspen's bad faith conduct caused the increased settlement amount. The court noted that Zurich's policy was not in excess of Aspen's policy. But Aspen could still be primarily liable because it caused the loss. 

    Zurich plausibly alleged that it compensated Cosmopolitan for the loss for which Aspen was primarily liable because ti contributed $323,187.66 to the settlement after Aspen rejected a lower, reasonable settlement demand. Zurich also plausibly alleged that Cosmopolitan had existing, assignable claims against Aspen that Cosmopolitan could have asserted on its own benefit had it not been compensated by Zurich for its loss.

    Zurich plausibly alleged it suffered damages due to Aspen's bad faith refusal to settle for a lower amount. Zurich plausibly alleged that justice required its $323,187.66 loss be shifted to Aspen. Finally, Zurich plausibly alleged its damages were liquidated: $323,187.66. Therefore, Zurich's claim for equitable subrogation survived Aspen's motion to dismiss.

    Zurich's claims for contractual subrogation and equitable indemnity also survived the motion to dismiss. The claim for equitable contribution was dismissed, however, with leave to amend. Because Zurich did not allege the amount of coverage its policy provided, it had not plausibly alleged it paid a disproportionate share. 

Insureds Survive Motion to Dismiss Civil Authority Claim

    After suffering business losses due to a hurricane, the insured's Civil Authority claim survived the insurer's motion to dismiss. Pathology Lab. v. Mt. Hawley Ins. Co., 2021 U.S. Dist. LEXIS 145129 (W.D. La. Aug. 3, 2021). 

    Hurricane Laura devastated Lake Charles, Louisiana causing severe damage to the insured property as well as other properties within a mile of the insured property. All seven electrical transmission line corridors feeding Lake Charles were catastrophically damaged causing an extensive power outage. Government shutdown Orders prohibited the insureds' access to the Lab. The Orders were issued by the respective civil authorities both in anticipation of and as a result of damage and dangerous physical conditions expected from and actually resulting from Hurricane Laura and the continuation thereof. When the hurricane arrived, all businesses that were not essential to the recovery were ordered closed until electricity, water and sewer services were restored. As a result, the Lab was closed from August 27, 2020 toSeptember 8, 2020. 

    The Lab sued for business income under the policy's Civil Authority provisions. Mt. Hawley moved to dismiss. Mt. Hawley argued that the Orders did not by their explicit terms close the Lab's business because closure was entirely dependent on the conditions of the described premises itself and whether it was safe to occupy. Mt. Hawley further argued that the mandatory Evacuation Order was issued in anticipation of property damage and therefore did not trigger coverage under the Civil Authority provision.

    The Lab argued that the Orders forced it to be closed and inaccessible to both employees and clients, triggering Civil Authority coverage. 

    The court agreed that the first mandatory evacuation order before arrival of the hurricane did not immediately trigger the Civil Authority coverage because when ordered, there was no damage to other property. Civil Authority coverage was triggered, however, when Hurricane Laura struck Louisiana, causing severe damage to Lake Charles and the surrounding area. The Orders were caused by and cited as their inducement direct physical loss of and damage to property caused by Hurricane Laura other than at the Lab's premises, but including areas within a mile thereof.

    Consequently, the Lab demonstrated Civil Authority coverage and the motion to dismiss was denied. 

Wisconsin Court of Appeals Re-affirms American Girl To Find Coverage for Damage Caused by Subcontractors

    The trial court's finding of no occurrence and no property damage due to faulty workmanship was reversed by the appellate court. No. 5 Walworth v. Engerman Contracting, Inc., 2021 Wis. App. LEXIS 401 (Wis. Ct. App, July 30, 2021). 

    Engerman was the general contractor on a construction project at a residence. Engerman was hired to build a poll complex. Engerman subcontracted the project to Downes Swimming Pool Co., Inc. Downes purchased shotcrete (sprayed concrete) from Otto Jacobs Company LLC for the swimming poll walls and base.

    After completion, the pool immediately began leaking. An investigation determined that the shotcrete material was not installed correctly, contributing to cracking in the pool walls and the steel reinforcing bars were not sufficient to prevent cracks in the pool walls. The owner demolished the pool and constructed a new one. Thereafter, the owner sued Engerman, its insurers (General Casualty Company of Wisconsin and West Bend Mutual Insurance Company) and Downes and its insurer. Downes filed a third-party complaint against Jacobs and its insurer (Acuity Mutual Insurance Company) alleging Jacobs negligently provided inferior shotcrete to Downes. 

    Engerman and Jacobs tendered to their respective insurers and were defended under a reservation of rights. Each insurer then brought a motion for summary and declaratory judgment that there was no coverage under their policies. The court granted the motion against Engerman, finding there was no occurrence and no property damage because there was no damage to property other than the pool itself. The court also granted Acuity's motion against Jacobs, finding the shotcrete was part of an integrated system - the pool structure. 

    On appeal, the Court of Appeals first considered whether Engerman could be found entitled to coverage. Engerman's case for coverage was based on its potential liability for the actions of its subcontractor, Downes, in allegedly building a pool with ineffective steel reinforcing bars, improperly installed shotcrete, and/or suboptimal shotcrete mixture. American Girl, however, made clear that defective workmanship may cause an occurrence (i.e., an accident), resulting in property damage. Am. Family Mut. Ins. Co. v. Am. Girl, Inc. 673 N.W. 2d 65 (Wis. 2004). There was evidence that Engerman, acting through its subcontractor, Downes, incorrectly installed shotcrete and used insufficient steel reinforcing brs. If coverage was sought for the costs of repairing or replacing the incorrectly install materials, controlling precent would hold that there was no "occurrence," and no coverage. In this case, however, there was evidence suggesting that the defective workmanship caused the pool walls to later crack and, in turn, the pool to leak. The cracking, which stemmed from the defective workmanship was not intended and was both an "accident" and a form of property damage. Consequently, there was the possibility of coverage. 

    The court next considered potential business risk exclusions. Under the "your work" exclusion, coverage was barred for the repair or replacement of the insured's work. But an exception existed for work preformed by a subcontractor. Here, all of the defective work alleged to have been performed by Engerman was performed by Downes, Engerman's subcontractor. Thus, the "your work" exclusion did not apply.

    Similarly, the "damage to property" exclusion, which barred coverage for "that particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it," did not apply. The exclusion also contained an exception for "'property damage' included in the 'products-complete operations hazard.'" The "products-completed operations hazard" meant the point in time at which the work was completed. In other words, where the pool was fully installed, the "damage to property" exclusion did not apply to damage that occurred from that point forward. 

    The "your work" exclusion was almost certainly inapplicable, assuming liability was based on the work of Downes as a subcontractor. As for the "damage to property" exclusion, at this stage, the court could not rule out the possibility that the pool was complete when the damage occurred, and if that was the case, the exclusion was also inapplicable. 

    Turning to Acuity's motion against Jacobs (who provided the shotcrete), property damage caused by a defective product could be considered as caused by an "accident." Product manufacturers purchased CGL coverage to guard agains this very risk, and to hold otherwise would essentially eliminate coverage altogether for cases involving defective products. Here, there was more than simply a pool rendered unusable without physical injury to property. There was at least some proof that the allegedly defective shotcrete did cause such injury. It was alleged that the product was defective, and that, upon its application, it caused damage to the pool structure through cracking and leaking. This led to leaks and cracks in the retaining walls stemming from the instability of the surrounding soil, which eventually necessitated demolition of the entire structure. Only if the entire pool complex was somehow considered part of the shotcrete could this be considered a case where Jacobs' product alone was damaged. This was not a logical conclusion to draw from the terms of the policy. Physical injury to other property that resulted from defective products was exactly what commercial liability insurance was designed to cover.

    Accordingly, the orders below were reversed and the case was remanded.

Denial of Claim for Data Breach Overturned by Fifth Circuit

    The Fifth Circuit reversed the district court's grant of summary judgment which held that the insurer had no duty to defend a data breach suit filed against the insured. Landry's, Inc. v. Ins. Co. of the State of Pennsylvania, 2021 U.S. App. LEXIS 21688 (5th Cir July 21, 2021). 

    Landry's operated retail properties like restaurants, hotels, and casinos. Pamentech processed Visa and MasterCard payments to those properties. When Paymentech discovered credit-card problems at some of the properties, it investigated and found a data breach occurred across 14 Landry's locations. The data breach involved the unauthorised installation of a program on Landry's payment-processing devices. The program was designed to search for data from credit cards magnetic strips, including the cardholder's name and other information. Over a year and a half, the program retrieved personal information from millions of customers' credit cards. 

    Paymentech filed suit agains Landry's for breaching the agreement between them. Paymentech alleged that Landry's violated the Payment Brand Rules, which led to the data breach. Paymentech alleged Landry's was liable under the agreement to pay $20,062,206 assessed against Paymentech by Visa and MasterCard. 

    Landry's submitted the claim to Insurance Company of the State of Pennsylvania (ICSOP). The policy stated that ICSOP would "pay those sums that [Landry's] becomes legally obligated to pay as damages because of personal and advertising injury" and "will have the right and duty to defend [Landry's] against any suit seeking those damages." ICSOP denied the claim and Landry sued. Cross-motions for summary judgment were filed and the district court ruled in favor of ICSOP. 

    The policy provided that ICSOP had a duty to defend Landry's if the Paymentech complaint sought damages "arising out of . . . the oral or written publication . . . of material that violates a person's right of privacy." The policy did not define "oral or written publication." The dictionary definition included the definition of "publication" as "the act of declaring or announcing to the public." The Paymentech compliant alleged that Landry's published its customers' credit-card information, or exposed it to view. The complaint alleged that Landry's published customers' credit-card data to hackers. Further, it alleged that the hackers published the credit-card data by using it to make fraudulent purchases. This met the requirement of publication.

    Next, the Fifth Circuit noted that the hackers' theft of credit-card data and use of that data to make fraudulent purchases constituted violations consumers' privacy rights. 

    Therefore, under the eight-corners rule, ICSOP had a duty to defend the underlying lawsuit. 

Hawaii Federal District Court Grants Preliminary Approval of Settlement on Volcano Damage

    The federal district court granted preliminary approval of the class action settlement reached on behalf of insureds who suffered property damage due to the 2018 Kilauea eruption on the Big Island. Aquilina v. Certain Underwriters at Lloyd's London, 2021 U.S. Dist. LEXIS 152614 (D. Haw. Aug. 13, 2021). 

    After destruction of their homes due to lava flow, plaintiffs sued various insurers and agents as a putative class action. Plaintiffs claimed they purchased surplus lines policies brokered and underwritten by various defendants. The policies each contained an exclusion for the peril of lava flow, which plaintiffs claimed rendered them worthless or unsuitable given that their properties were located in a high-risk lava zone.

    Plaintiffs alleged that defendants breached obligations under the Hawaii Surplus Lines Act, which required that surplus lines insurers conduct a diligent search for other available coverage before placing a homeowner with surplus lines coverage. Plaintiffs alleged defendants should have advised them of the availability of lava-damage coverage through the Hawaii Property Insurance Association (HPIA), a statutorily created association of admitted insurers established in part in response to Kilauea's eruption patterns, which made the private insurance market less likely to Insure certain high-risk areas. 

    After three years of litigation, the parties reached a settlement before the class was certified. Under the settlement, defendants agreed to pay $1.8 million to be allocated among class members. The expense of notice and administration, service awards of $5,000 to the class representatives, attorneys' fees and litigation costs would be deducted from the Settlement Fund. The class members who chose not to opt out of the Settlement would agree to release all defendants from all claims and liability arising from the allegations made in the case.

    The court first considered whether to enter an order provisionally certifying the proposed Settlement Class. The court found that the Rule 23 (a) factors of numerosity, commonality, typicality and adequate representation were satisfied. The proposed class consisted of about 162 households. There were common factors of law and fact involving defendants' alleged conduct and the injuries to plaintiffs and class members. Typicality was satisfied because plaintiffs' claims challenged a course of conduct that applied to all the class members such that they all suffered the same or similar injury. Finally, the court found that the named plaintiffs and their counsel were adequate representatives of the class.

    The court next found that the Rule 23 (b) (3) requirements of predominance and superiority were satisfied.

    The court then turned to the preliminary approval of the settlement. The settlement properly struck a balance between the strengths of plaintiffs' case and risks of continued litigation before a jury. The settlement provided plaintiffs with a fair and meaningful resolution of their claims. 

    The settlement also appeared to be fair. The parties participated in arm's length settlement discussions, exchanged settlement communications for several months, attended a settlement conference and further mediation. In agreeing to a $1.8 million settlement, the parties appeared to have made serious, good faith efforts to settle, with both ceding ground on their initial positions. The settlement provided a favorable outcome to plaintiffs and the class members, each of whom were projected to receive 100% of premiums paid.

    Regarding fees to be paid to plaintiffs' counsel, the court noted that the 33.3% of the gross Settlement Fund that would be requested was not excessive, but the court was not likely to approve more that the 25% benchmark set by the Ninth Circuit. Plaintiffs' counsel, however, would have the opportunity at the final fairness hearing to present compelling evidence supporting a departure from the benchmark. 

    Finally, the court agreed that the named plaintiffs were entitled to a service fee of $2500 each. Both played a critical roll in the ligation in assisting class counsel.

Rule 30 (b) (6) Deposition of Insurer Representative Ordered to Go Forward

    The Texas Supreme Court ordered that a Rule 30 (b) (6) deposition could go forward with appropriate limitations. In re USAA Gen. Indem. Co., 2021 Tex. LEXIS 540 (Tex. June 18, 2021). 

    Frank Wearden was insured under a automobile policy issued by USAA. Wearden was involved in a car accident with Michelle Bernal, who Wearden said was uninsured and at fault. Wearden settled with Bernal and then sued USAA for benefits under his policy's uninsured/underinsured  (UIM) coverage.

    Wearden served a Rule 30 (b) (6) notice to depose a USAA representative on identified topics. USAA filed a motion to quash the notice and accompanying subpoena duces tecum. USAA conceded that Wearden was an insured, he was driving an insured vehicle under the policy, and the $100,000 per person UIM benefits were available if Wearden established his right to recover such benefits. In light of these concessions, USAA argued that neither how it investigated and evaluated Weaden's claim nor how it evaluated the lawsuit was probative of the only issues the jury would be required to decide. 

    The trial court denied the motion to quash. The court of appeals denied USAA's petition for writ of mandamus.

    On appeal to the Texas Supreme Court, USAA argued the trial court abused it discretion in failing to quash the notice because no USAA employees had relevant personal knowledge regarding the disputed car wreck issues.

    The Supreme Court found that the representative's deposition would be relevant. USAA had conceded some facts regarding coverage, but disputed both Bernal's liability for the underlying accident and the existence and amount of Wearden's damages. Presumably, USAA had information that supported its position on these issues. This information was discoverable unless privileged, regardless of its admissibility at trial. Therefore, the deposition was not categorically prohibited on relevance grounds. The deposition, however, could not exceed the bounds of the claims at issue. 

    Therefore, Wearden's inquiry into the "facts supporting USAA's legal theories and defenses," whether "Bernal was an uninsured/underinsured motorist," and USAA's "claims and defenses regarding Wearden's assertions in this lawsuit" were permitted because these topics were limited to disputed issues. 

    On the other hand, deposing USAA about all aspects of the UIM policy when USAA had already conceded the policy provided coverage for up to the $100,000 limits if Wearden established Bernal's liability and sufficient damages went too far. Also, a general inquiry into the UIM policy, Wearden's compliance with the policy's "contractual provisions," and the occurrence of and compliance with "all conditions precedent to recovery," exceeded the relevant subject matter of the suit and were improper. 

    Finally, inquiry into extracontractual matters such as the claims-handling process was improper before entitlement to benefits under the policy was established. 

    With these limits, the deposition of USAA's representative was permissible under the discovery rules. 

Anti-Concurrent Causation Clause Eliminates Loss from Hurricane

    The court found the insured was not covered for losses caused by Hurricane Laura due to the implementation of the policy's anti-concurrent causation clause. Aegis Sec. Ins. Co. v. Lejeune, 2021 U.S. Dist. LEXIS 106804 (W. D. La. June 7, 2021). 

    At the time of the hurricane, the insureds' home was covered by a manufactured home insurance policy issued by Aegis. The policy excluded coverage for damage "caused by, contributed to or aggravated by" flooding. The policy's anti-concurrent causation clause read, "We do not pay for loss to the types of property covered under this policy caused by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss." The policy's exceptions followed. 

    After the storm, the insureds submitted their claim. Aegis filed suit for declaratory judgment. Aegis relied upon reports that the manufactured home and barn owned by the insureds were damaged by winds, then displaced and destroyed by storm surge associated with the hurricane. The home first sustained damage from the storm's high winds before it was displaced from its concrete piers by a 12 to 16 foot storm surge. 

    The court noted that the Fifth Circuit had held that an anti-concurrent causation clause like the one in this policy was not ambiguous and may properly exclude coverage for damages caused by a combination of an excluded peril and a non-excluded peril. Such provisions were not precluded by Louisiana statutory law, case law, or public policy. 

    The insureds asked the court to take judicial notice of the storm's high winds and argued that their home was totaled and rendered uninhabitable by wind long before the storm surge arrived. Aegis, however, met its burden of showing that an exclusion applied. The insureds' argument was insufficient to create a genuine issue of material fact on the applicability of the exclusion or their own ability to show that the damages were segregable.

    Accordingly, Aegis was entitled to a declaratory judgment. 

    

    

Insurer's Motion to Strike Class Action Allegations in Business Interruption Action Denied

    The court denied the insurer's motion to strike class action allegations in the insureds' complaint seeking to establish business interruption claims under the insurer's policy. Legacy Gymnastics, LLC v. Arch Ins. Co., 2021 U.S. Dist. LEXIS 108242 (W.D. Mo. June 9, 2021). 

    In its putative class action, Legacy alleged that Arch denied Legacy's claim for coverage stemming from damage incurred due to COVID-19. Legacy temporarily closed its facility due to the pandemic. While Legacy had reopened, it continued to suffer lost revenues and increased costs. Legacy's claim that the restriction on use of its property constituted direct physical loss of or damage to property was denied by Arch. Legacy filed suit on its behalf and similarly situated insureds under Rule 23, Fed. R. Civ. P. Legacy's complaint sought to represent a class of all businesses that were covered as of March 2020 by one of Arch's policies that contained business interruption provisions. 

    After Legacy amended its complaint, Arch sought to strike the class action allegations. Legacy contended the arguments opposing class certification were premature and asked the court to deny the motion so that discovery could proceed.

    Arch first argued that applying multiple states' laws rendered a class action unmanageable because state courts disagreed whether COVID-19 caused direct physical loss or damage to property. The court, however, could not discern from the pleadings in which states other potential class members were located, and whether there were material differences in the laws of those states. The court found it was appropriate to allow Legacy to engage in discovery to determine whether the Rule 23 (b) requirements could be satisfied.

    Arch also argued that because Legacy's policy covered only personal property, the claims were not typical of class members who purchased policies that insured premises, buildings, or structures and that had a claim for direct physical loss or damage to that property. Again, the court found Arch's typicality arguments were premature.