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."