Insurance Law Hawaii

Insured Overcomes Motion to Dismiss COVID-19 Claim Despite Virus Exclusion

    A Florida federal district court denied the insurer's motion to dismiss the insured's COVID-19 business interruption claim despite the policy's virus exclusion. Urogynecology Specialist of Fla. LLC v. Sentinel Ins. Co., 2020 U.S.  Dist. LEXIS 184744 (M.D. Fla. Sept. 24, 2020). 

    Due to emergency orders caused by the COVID-19 pandemic, plaintiff was forced to close for a period of time in March 2020 and could not operate as intended. During the shut down, plaintiff suffered numerous losses including loss of use of the insured property, loss of business income, and loss of accounts receivable. Plaintiff filed a claim with its insurer, Sentinel, claiming losses to its medical clinic being closed. Sentinel denied coverage and plaintiff sued.

    Sentinel moved to dismiss, relying primarily on the policy's virus exclusion. The exclusion barred coverage for loss or damage caused by "presence, growth, proliferation, spread or any activity of 'fungi,' wet rot, dry rot, bacteria or virus." Plaintiff argued the exclusion was ambiguous.

    The court agreed. The policy included a "Limited Fungi, Bacteria or Virus Coverage" section which stated it modified certain forms. Those forms were not provided as part of the policy, however. Without the corresponding forms, the court could not make a decision on the merits of the plain language of the policy to determine whether there was coverage. Further, denying coverage for losses stemming from COVID-19 did not logically align with the grouping of the virus exclusion with other pollutants such that the policy necessarily anticipated and intended to deny coverage for these kinds of business losses. 

    Sentinel relied on cases interpreting the exclusion that dealt with pollution exclusions and sewage backups, damage caused by mold, and claims resulting from illness or disease, all of which fell under policy exclusions. None of the cases dealt with the unique circumstances of the effect COVID-19 had on society. Without any binding case law on the issue of the effects of COVID-19 on virus exclusions, the court found that plaintiff stated a plausible claim at this point. Therefore, Sentinel's motion to dismiss was denied.

Finding Adjustor Properly Joined, Court Orders Remand of COVID-19 Claim

    The federal district court found there was no diversity based upon joinder of the adjustor and granted the insured's motion for remand. Jada Rest. Grp., LLC v. Acadia Ins. Co., 2020 U.S. Dist. LEXIS 163296 (W.D. Tex. Sept. 8, 2020).

    Plaintiff owned several restaurants. It held a business insurance policy with Acadia. When state and local authorities limited Plaintiff's business to take-out or delivery service due to the COVID-19 pandemic, Plaintiff sustained heavy income losses. 

    Plaintiff submitted a claim for business interruption to Acadia. Defendant Christopher Michels, an insurance adjuster, was retained by Acadia to investigate the claim. After Michels completed the investigation, Acadia denied the claim. Acadia relied on the policy's virus exclusion and the absence of direct physical loss of or damage to the property.

    Plaintiff sued in state court. it alleged that Defendant Michels conducted an outcome-oriented investigation of Plaintiff's claims. Plaintiff asserted that Michels made no requests for documentation or information relating to the claim and denied the claim so quickly that he cold not have conducted a proper investigation. Acadia sent plaintiffs a notice under the Texas Insurance Code that Acadia was accepting any potential liability for Defendant Michel.

    Acadia removed to federal district court, asserting diversity jurisdiction. Plaintiffs moved for remand, arguing that both Plaintiff and Defendant Michels were Texas citizens. Acadia argued that Michels was improperly joined because of its election to accept liability on Michels' behalf. 

    The court found that the Texas Insurance Code provision that allowed an insurer to accept potential liability for an adjustor applied only to "forces of nature." Government-mandated business closures were not "forces of nature." Further, a virus was not a "force of nature" for the purposes of the statute. 

    Further, Plaintiff adequately pled a claim against Defendant Michels. Plaintiff alleged his investigation was done so quickly that it was out-come oriented. Michels erroneously denied coverage based upon the policy's virus exclusion when none o the restaurants had evidence of viral contamination. Moreover, Plaintiff alleged misconduct on the part of Defendant Michel that was separate and apart from Acadia. Whereas Plaintiff's claims against Acadia sounded primarily in breach of contract, the claims against Defendant Michel rested on alleged violation of the Texas Insurance Code.

    Therefore, Plaintiff pled specific causes of action against Defendant Michels and he was not improperly joined. The case was remanded for lack of subject matter jurisdiction.

MDL Panel Grants Consolidation for One Group of COVID-19 Claims

    Previously denying consolidation of all COVID-19 business interruption claims [post here], the Judicial Panel on Multidistrict Litigation allowed consolidation of one group of cases against Society Insurance Company while denying consolidation of four other groups of cases. In re Soc'y Ins. Co. COVID-19 Bus. Interruption Protection Ins. Litigation, 2020 U.S. Dist. LEXIS 183678 (J.P.M.L. Oct. 2, 2020).

    Claims against Society encompassed 34 actions filed in Illinois, Indiana, Iowa, Minnesota, Wisconsin, and Tennessee. The court found that centralization of the Society actions would serve the convenience of the parties and witnesses and further the just and efficient conduct of the litigation. The actions shared common factual allegations that Society wrongfully denied policy holders' claims for business interruption coverage. Plaintiffs contended that Society preemptively decided to deny their claims.

    The policies appeared to use standard forms drafted by the ISO and would involve the interpretation of common policy language. The actions would require an assessment of whether COVID-19 caused any direct physical loss of or to property, and whether any of Society's policy exclusions applied to preclude claims. To the extent discovery was necessary regarding the drafting and interpretation of the policies, that discovery would be common to all actions. 

    The panel recognized that many plaintiffs were on the brink of bankruptcy as a result of business lost due to the COVID-19 pandemic and government closure orders. Centralization presented the most efficient means of advancing these actions toward resolution. 

    In other orders, the Panel concluded that consolidation would not be the most efficient method for suits against The Hartford, Travelers, Cincinnati Insurance Company and Lloyd's of London. 

    

Chiropractor's COVID-19 Loss of Business Income Claim Rejected

    The federal district court in Michigan dismissed the insured chiropractor's loss of business income claim. Turek Enters. v. State Farm Mut. Auto, Ins. Co., 2020 U.S. Dist. LEXIS 161198 (E.D. Mich. Sept. 3, 2020). 

    Plaintiff was forced to close its business from March 24 to May 22, 2020, due to the Governor's shut-down order. Plaintiff filed a claim with State Farm, but it was denied because the insured property had not sustained accidental direct physical loss. Further, the policy included a virus exclusion. 

    Plaintiff sued and State Farm moved to dismiss. State Farm argued that Plaintiff's business interruption losses were not caused by a Covered Cause of Loss. The losses were not the result of an "accidental direct physical loss to Covered Property." 

    The court focused on "direct physical loss." Plaintiff argued that "physical loss to Covered Property" included the inability to use Covered Property. This interpretation was consistent with the definition of "loss," but ultimately rendered the worst "to" meaningless. "To" was used as a preposition indicating contact between two nouns, "direct physical loss" and "Covered Property." Accordingly, the plain meaning of "direct physical loss" required that there be a loss to Covered property; and not just any loss, a direct physical loss. Plaintiff's interpretation would be plausible if, instead, the term at issue were "accidental direct physical loss of Covered Property."

    State Farm's interpretation was also consistent with the recent COVID-19- related cases interpreting similar or identical terms, including Diesel Barbershop, LLC v. State Farm Lloyds [post here]. Because Plaintiff failed to state a "direct physical loss to Covered Property," the complaint did not allege a covered Cause of Loss.

    Further, the virus exclusion barred coverage. Plaintiff argued that the order, not the virus, caused the loss. But the order itself, and by extension Plaintiff's business interruption losses, would not have occurred but for COVID-19. Further, the policy's anti-concurrent causation clause extended the virus exclusion to all losses where a virus was part of the causal chain. Thus, even if the order were a more proximate cause than COIVD-19, coverage would still be excluded. 

Dentist's COVID-19 Business Interruption Claim Dismissed Based on Virus Exclusion

    A Florida dentist could not survive the carrier's motion to dismiss a business interruption claim due to closures for COVID-19. Martinez v. Allied Ins. Co. of Am., 2020 U.S. Dist. LEXIS 165140 (M.D. Fla. Sept. 2, 2020). The court's Order is here.

    The dentist alleged that the government mandated emergency declarations limited his dental practice. He claimed that he (1) incurred costs to decontaminate his dental office of the virus, and (2) lost business income because of the Governor's limitation of dental services to only emergency procedures during the COVID-19 pandemic.  

    Allied argued that the policy contained an exclusion for loss or damage caused "directly or indirectly," by "any virus, bacterium or other microorganism that induces or is capable of including physical distress, illness or disease."

    Because the dentist's damages resulted from COVID-19, a virus, neither the Governor's executive order narrowing dental services to only emergency procedures nor the disinfection of the dental office of the virus was a "Covered Cause of Loss" under the policy. The complaint was dismissed with prejudice. 

    

Civil Authority Claim Based on COVID-19 Dismissed

    A California federal district court dismissed the insured restaurant's civil authority claim after being ordered to close due to COVID-19. 10E, LLC v. Travelers Indemnity Co. of Connecticut, et al., 2020 U.S. Dist. LEXIS 156827 (C.D. Calif. Aug. 28, 2020).  The decision is here. 

    Public health restrictions prohibited in-person dining at plaintiff's restaurant, limiting its business to takeout and delivery. Plaintiff sought compensation for lost business and other costs of the disruption under Business Income and Extra Expense Coverage. The policy covered losses and expenses "caused by action of civil authority that prohibits access to the described premises." Further, "[t]he civil authority action must be due to direct physical loss of or damage to property." Finally, the policy included a virus exclusion that applied to actions of civil authority. 

    Plaintiff sued, alleging that it was entitled to coverage because public health restrictions prohibited access to its restaurant. The restrictions caused "physical damage" by labelling of the insured property as non-essential and preventing the ordinary intended use of the property. Plaintiff also alleged that the virus exclusion did not include exclusion for a viral pandemic. 

    Travelers filed a motion to dismiss. The court agreed that Plaintiff did not plausibly allege that it suffered "direct physical loss of or damage to property" as required for civil authority coverage. Under California law, losses from inability to sue property did not amount to "direct physical loss of or damage to property" within the ordinary meaning of that phrase. Physical loss or damage occurred only when property underwent a distinct, demonstrable, physical alteration. Detrimental economic impact did not suffice. Labeling the property as non-essential did not physically alter any of Plaintiff's property. Further, Plaintiff did not allege that the virus infected or stayed on surfaces of its insured property. Whatever physical alteration the virus caused to property in general, nothing in the complaint plausibly supported an inference that the virus physically altered conditions for Plaintiff's restaurant 

    Plaintiff attempted to circumvent the plain language of the policy by emphasising its disjunctive phrasing - "direct physical loss of or damage to property." Plaintiff, however, did not allege that it was permanently dispossessed of any insured property. Instead, Plaintiff remained in possession of its dining room and restaurant. 

    Therefore, the motion to dismiss was granted. Plaintiff was allowed 14 days to amend its complaint. 

Failure to Plead Physical Loss or Damage Leads to Dismissal of COVID-19 Claim

    The insured's claim for business interruption losses due to COVID-19 was dismissed for failure to plead direct physical loss of or damage to property. Malaube LLC v. Greenwich Ins. Co., 2020 U.S. Dist. LEXIS 156027 (S.D. Fla. Aug 26, 2020).

    The insured restaurant had to suspend operations when local and state orders closed all onsite dining due to COVID-19. The insured submitted a claim for business interruption losses to its carrier. Greenwich denied the claim because the insured did not experience any physical loss or damage to the insured property. The insured sued. 

    Greenwich moved to dismiss the complaint because it only provided coverage for actual loss of business income if a direct physical loss or damage to the property caused a suspension to the insured's operations. There were no allegations that the insured property ever suffered a direct physical loss or damage. The insured equated the closure of its indoor dining to a physical loss because the business could no longer operate for its intended purpose.

    The court compared the allegations here to those made by the insured in Studio 417, Inc. v. Cincinnati Ins. Co., 2020 U.S. Dist. LEXIS 147600 (W.D. Mo. Aug 12, 2020) [prior post is here]. There, the court denied the insurer's motion to dismiss because the insureds' alleged that COVID-19 was a highly contagious virus that was physically present in viral fluid particles and deposited on surfaces and objects. In contrast, here there was no allegation that COVID-19 was physically present on the premises. 

    Other provisions in the policy supported the same interpretation. The Business Income and Extra Expense provisions provided for coverage for an insured's operations during a "period of restoration." A period of restoration was defined to end after the property was repaired or replaced. The words "repair" and "replace" contemplated physical damage to the insured premises as opposed to loss of use of it. 

    Therefore, Greenwich's motion to dismiss was granted. The insured, however, was given leave to amend its complaint.

 

 

Court Denies Remand of COVID-19 Case

    The federal district court rejected a challenge to its diversity jurisdiction and rejected the insured's attempt to remand the COVID-19 claims back to state court. Vandelay Hospitality Group LP v. Cincinnati Ins. Co., 2020 U.S. Dist. LEXIS 149196 (N.D. Tex. Aug. 18, 2020).

    Vandelay purchased a commercial property policy from Cincinnati through Swingle Collins, its registered broker, and its employee, Baron Cass. The policy was "all risk" and purported to insure three of Vandelay's restaurants for, amoung other things, direct physical loss and loss incurred due to business interruptions.

    Vandelay had to close its restaurants in March 2020 when state and local officials issued emergency orders limiting dine-in restaurants to take-out service due to COVID-19. Vandelay closed its three restaurants and submitted a claim to Cincinnati. The claim was denied. Vandelay sued Cincinnati and Cass in state court for breach of contract and for a declaratory judgment that the policy covered the claimed losses. Vandelay amended its petition to join Swingle Collins.

    Cincinnati removed the case based on diversity jurisdiction, contending Cass and Swingle Collins were fraudulently joined. Cincinnati was an Ohio corporation. Vandelay, Cass and Swingle Collins were all citizens of Texas.

    A declaratory judgment was appropriate only if (1) a justiciable controversy existed and (2) the controversy would be resolved by the declaration sought. Duplicative relief could not be sought in a declaratory judgment action.

    Vandelay sought a declaration that the forced closures of its restaurants denied access to the premises and was covered under the policy. Further, Vandelay sustained "direct physical loss to property" because of COVID-19 and the related state and local orders. Finally, Vandelay wanted to establish that the lost business income it sustained was due to the necessary suspension of operations.

    Each of the declarations sought would be resolved in the context of Vandelay's breach of contract action. Therefore, the declaratory relief sought would add nothing to the action in that the request mirrored Vandelay's claims and duplicated its own claim for breach of contract.  Because the court's adjudication of the breach of contract claim would determine whether there was coverage and thereby determine all parties' rights under the policy and any claims arising out of its formation, the declaratory judgment claims were duplicative and unavailable as a matter of law. 

    Consequently, defendants met their burden of demonstrating that there was no reasonable basis for predicting that Vandelay might be entitled to a declaratory judgment in state court. There was no reasonable basis for recovery against Swingle Collins and Cass, so Vandelay's motion for remand was denied. 

Texas Federal District Court Dismisses COVID-19 Claim

    Judge Ezra, formerly on the bench in Hawaii, dismissed a COVID-19 claim pursued by a Texas policy holder. Diesel Barbershop, LLC v. State Farm Lloyds, 2020 U.S. Dist. LEXIS 147276 (W.D. Texas Aug. 13, 2020).

    Local and state officials in Texas issued shutdown orders in March 2020 due to the spread of the cornavirus. All non-essential businesses, including the insureds' barbershop businesses, were ordered closed from April 2, 2020 until April 30, 2020. The insureds submitted a claim for business interruption and civil authority coverage to their carrier, State Farm. The claim was denied based on the policy's exclusion for loss caused by enforcement of ordinance or law, virus, and consequential losses. For Civil Authority coverage, State Farm contended the policy required that there by physical damage within one mile of the described property and that the damage be the result of a Covered Cause of Loss, which, State Farm asserted, a virus was not. 

    The insureds sued and State Farm moved to dismiss. The court noted cases in which courts had found physical loss even without tangible destruction to the covered property. Yet, the court found that the line of cases requiring tangible injury to property were more persuasive. Therefore, the court found that the insureds failed to plead a direct physical loss.

    Further, the virus exclusion barred the insureds' claim. The lead-in language for the virus exclusion included an anti-concurrent causation clause (ACC clause) which stated State Firm did not insure for a loss regardless of "whether other causes acted concurrently or in any sequence within the excluded event to produce the loss." 

    The court found that the insureds pleaded that COVID-19 was the reason for the shutdown orders being issued and the underlying cause of the alleged losses. While the orders forced the properties to close to protect public health, the orders only came about sequentially as a result of the COVID-19 virus spreading rapidly throughout the community. The presence of COVID-19 was the primary root cause of the insureds' businesses temporarily closing. Therefore, the ACC clause excluded coverage for the losses the insureds incurred in complying with the orders.

    The court also found that the Civil Authority provision was not triggered. The events caused the Virus Exclusion to apply such that the insureds failed to alleged a legally cognizable "Covered Cause of Loss."

Insurer Must Defend Allegations of Negligent Infliction of Emotional Distress

    The federal district court, District of Hawaii, found the insurer had a duty to defend allegations which included a claim for negligent infliction of emotional distress. AIG Prop. Cas. Co. v. Judgment, 2020 U.S. District. LEXIS 143485 (D. Haw. Aug. 11, 2020).  

    The underlying complaint alleged that plaintiff Mrs. Ross entered a private dressing area of the clothing store to try on clothes she considered purchasing. Neil Anenberg wanted to try on a shirt, and attempted to enter the dressing area where Ross was located. The underlying complaint alleged that Anenberg engaged in assaultive conduct by rummaging, feeling and grabbing the curtain attempting to make physical contact with Ross. A store employee then showed Anenberg another dressing room. After trying on the shirt, however, Anenberg passed by Ross' dressing room, placed his cell phone beneath the curtain, and took photos of Ross while she was changing clothes. A store video captured the events described in the underlying complaint. 

    Ross sued, alleging, among other things, Negligent Infliction of Emotional Distress (NIED). In discovery, Ross stated she tried to make a joke with Anenberg, telling him she "didn't want to spoil his breakfast."

    Anenberg tendered his defense to AIG, who had issued him a homeowner's policy. AIG accepted the defense under a reservation of rights and filed suit for a declaratory judgment. AIG moved for summary judgment that it had no duty to defend. The primary focus was two exclusions in the policy: the intentional act or expected injury exclusion and the sexual molestation/misconduct exclusion.

    The court noted that under Hawaii law, AIG had to establish it was impossible for Anenberg to be found liable to Ross for any claim requiring indemnification from AIG. The court agreed with Anenberg that it was at least possible for a fact finder to find Anenberg liable for negligently inflicting damages that were not caused "intentionally' or that were not "expected" within the meaning of the exclusion. 

    The exclusion barred coverage for acts that were "intended to result in, or would be expected by a reasonable person," suggesting an objective standard. But it was possible that Anonberg would not have expected to harm Ross (at least in the time frame before he changed his shirt). 

    The policy also excluded coverage for personal injury arising out of "social molestation, misconduct or harassment," or "sexual physical or mental abuse." The policy did not define these terms. It was possible Anenberg committed other torts (e.g., NIED)l that would not constitute "sexual molestation, misconduct, or harassment," and thus would not be excluded from coverage.

    Therefore, AIG had a duty to defend.