The insured furniture retailer survived a motion to dismiss its business interruption claim after government orders caused disruption of the insured's operations due to COVID-19. Susan Spath Hegedus v. Ace Fire Underwriters Ins. Co., 2021 U.S. Dist. LEXIS 88041 (E.D. Pa. May 7, 2021).
Plaintiff operated two locations in California. Plaintiff had an all-risk policy from Ace. When the pandemic struck, county and state orders shuttered plaintiff's business as non-essential. Plaintiff filed a claim for lost business income. Ace denied the claim because the losses did not arise from any direct physical loss or damage to property, and were barred by the policy's virus exclusion. Plaintiff filed suit and Ace moved to dismiss.
The court found that plaintiff plausibly stated claims for coverage related to business income. The Business Income Additional Coverage portion of the policy required "direct physical loss of or damage to" property. This disjunctive language indicated the two phrases could not be synonymous, or they would be redundant. The allegations in plaintiff's complaint regarding its suspension of operations could plausibly constitute a "direct physical loss of . . . property at the described premises," because plaintiff lost the ability to physically operate its business. The phrase "direct physical loss of or damage to" was ambiguous as used in the policy. Therefore, the plaintiff's alleged loss of property that plausibly fell within the scope of the policy was sufficient to survive the motion to dismiss.
Addressing the virus exclusion, the court noted that the complaint alleged it was the government shutdown orders that caused the losses, not the virus. The complaint did not allege the presence of the virus at the premises. It alleged that the government orders caused its losses when its business operations were suspended. Regardless of what may have precipitated the closure order, the virus continued to exist. Accordingly, it was the order to shut down the business that forced the closure. The argument that the orders themselves caused the losses, or were at least the predominant cause of its losses, was also sufficient to defeat the motion to dismiss.
