Early decisions are starting to appear where insurers have denied coverage for business interruption after shut downs due to the coronavirus. Most of these early decisions address procedural issues, but a trial court in Michigan recently granted the insurer's motion to dismiss a claim for business interruption due to mandated closures.
In ABC Daycare & Learning Ctr. v. W. Bend Mut. Ins. Co., 2020 U.S. Dist. LEXIS 11491 (E.D. Ky. June 20, 2020), ABC was ordered closed on March 18, 2020, by the Kentucky Secretary for Health and Family Services (Secretary). ABC filed a claim for business interruption coverage with West Bend, which was denied. The policy provided coverage for claims arising from communicable disease-related forced shutdowns if (1) the shutdown was ordered by local, stated or federal health officials, and (2) the shutdown was due to an outbreak of a communicable disease at the insured premises.
ABC sued in state court, adding the Secretary as a defendant. West Bend removed to federal court, arguing the Secretary was a nominal defendant. ABC sought remand. West Bend argued that the case solely concerned its alleged failure to pay the business interruption claim and the interpretation of the Secretary's order was only at issue to the extent it related to the enforcement of the policy. ABC contended the Secretary was an indispensable party because his authority to order all daycares to close would be challenged by West Bend, and the overall scope and interpretation of the order was central to the case.
The court agreed with ABC and ordered the case remanded to state court. ABC likely could not maintain a successful communicable disease-related business interruption claim unless a valid government order caused ABC to close.
In the second recent case, the insured sought a stay of the suit seeking coverage for its business interruption losses due to COVID-19. After filing suit, a group of plaintiffs nationwide filed before the Judicial Panel on Multidistrict Litigation (JPML) seeking to consolidate actions filed against insurers for COVID-19 related losses. The Panel was scheduled to hear motions whether to consolidate the cases on July 30, 2020. The insured sought a stay until after a decision was made by the JPML. Meanwhile, the insurer had filed a motion to dismiss. On balance, the court found that a stay pending a decision by the JPML was warranted.
There is no published written decision from the Michigan trial court's decision to dismiss the insured's business interruption claim, but it is available on You Tube. [here] In Gavrilides Management Company vs. Michigan Insurance Company, the complaint did not alleged direct physical loss of or damage to the property. The property still stood without any physical alteration. There was no allegation that coronavirus had entered the premise through either an employee or patron. Instead, the plaintiff alleged that the government closure orders caused the loss. The pleading did not establish coverage as a matter of law and the case was dismissed.
