Insurance Law Hawaii

Spoiled Beer is a Covered Loss, But No Claim for Loss of Income

    The insured's claim for the cancellation of a beer order due to COVID-19, leading to its spoiling, was not covered for loss of business income. Harvest Moon Distributors, LLC v. Southern-Owners Ins. Co., 2020 U.S. Dist. LEXIS 189390 (M.D. Fla. Oct. 9. 2020).

    Harvest Moon purchased beer under a contract with Walt Disney Parks and Resorts. Before the product shipped, Disney closed its operations to the COVID-19 pandemic and refused to accept the beer delivery. Harvest Moon submitted a claim to Southern for loss of business income caused by the pandemic. Southern denied the claim and Harvest Moon filed suit. Southern moved to dismiss. 

    The complaint alleged that the beer spoiled when Disney closed due to the pandemic, and that the spoliation of the product was a direct physical loss under the policy. The court agreed that these were sufficient allegations to plead a plausible claim that the spoiled beer constituted a covered loss because the beer was allegedly inedible. 

    The business income provision of the policy stated the insurer would pay for the suspension of operations during the "period of restoration." The complaint merely alleged that Disney suspended operations, not Harvest Moon. There were no allegations that Harvest Moon suspended its operations or underwent any period of restoration.  

    Policy exclusions also had to be considered. The policy did not cover losses or damages caused by delay, loss of use or loss of market. Nor did the policy cover losses caused by acts or decisions of any person, group, organization or governmental body. The court found that the Harvest Moon's loss arose from Disney's act of refusing the beer, not from the pandemic. COVID-19 itself did not damage the beer. The beer would not have been damaged but for Disney's decision, making Disney the cause of the alleged spoliation. Further, the complaint stated that Harvest Moon experienced "loss of use" of its product, which was expressly excluded from coverage.

    Therefore, the complaint was dismissed without prejudice to allow Harvest Moon the opportunity to file an amended complaint. 

California Federal District Court Finds No Business Interruption Coverage for Hawaii Business

    The federal district court in California dismissed the business interruption claim arising from COVID-19 by a Hawaii store chain. Water Sports Kauai v. Fireman's Fund Ins. Co., 2020 U.S. DIst. LEXIS 209547 (N.D. Cal. Nov. 9, 2020).    

    Sand People closed its twelve stores on three islands six months ago due to the spread of the coronavirus and government shut down orders. It submitted a claim for coverage to its insurer, Fireman's Fund. The claim was denied.

    Sand People filed a class action, which included a Hawaii subclass of businesses in Hawaii insured by Fireman's Fund who made a claim arising from lost business income due to COVID-19 and did not obtain coverage for the claim. Fireman's Fund moved to dismiss, arguing the mere threat of coronavirus was insufficient to show a "direct physical loss of or damage to" covered property and the government closure orders were likewise insufficient. 

    Sand People argued that coronavirus was rapidly spreading in Hawaii, but failed to allege both its presence in any of its properties and a manifestation of imminent threat of contamination of any of its properties. There were no facts plausibly alleging an actual exposure at one or more of Sand People stores, much less that an actual physical exposure caused them to close a particular store or set of stores. 

    Sand People argued it suffered a "loss of" its property and "material alteration" of the property was not required. It argued that "loss" broadly included a deprivation, dispossession, and impairment of property, similar to what it suffered here due to the government orders shutting down non-essential businesses. But the case law required some physical tangible injury (like total deprivation of property) to support "loss of property or a physical alteration or active presence of a contaminant to support "damage to" property. Having failed to so plead, the claim was dismissed with leave to amend.

    The claim for civil authority coverage suffered the same result. The preventative closure orders could not support a causal link of direct physical loss of or damage to property. 

    

Virus Exclusion Leads to Dismissal of COVID-19 Business Interruption, Civil Authority Claims

    The court dismissed the insured business interruption and civil authority claims due to the policy's virus exclusion. Franklin EWC, Inc. v. Hartford Fin. Servs. Group, 2020 U.S. 174010 (N.D. Calif. Sept. 22, 2020). 

    Franklin operated the European Wax Center. It was forced to close on March 19, 2020, due to State and other public health orders because of  COVID-19. Franklin suffered business losses and laid off 30 employees. Franklin filed a claim with the insurer seeking coverage under the policy for business income lost due to the closure orders. The insurer denied the claim and Franklin sued. The insurer moved to dismiss. 

    The policy contained a virus exclusion stating the insurer would not pay for loss or damage caused directly or indirectly by a virus. Franklin's complaint repeatedly alleged that the virus caused the risk of direct physical loss required for a Covered Cause of Loss. A Covered Cause of Loss was defined as a "risk of direct physical loss," unless the loss was excluded under the policy. Thus, as the loss was caused directly or indirectly by the virus, the virus exclusion applied. 

    Franklin argued even if the virus exclusion applied, there was still coverage for civil authority. The Covered Cause of Loss was the closure orders that created the "risk of direct physical loss." Franklin therefore argued that the loss was created by the closure orders rather than the virus, and therefore the virus exclusion did not apply,

    The court disagreed. The civil authority provision provided that it applied when access was prohibited by order of the civil authority "as the direct result of a Covered Cause of Loss." Franklin argued that the closure orders were issued as the direct result of the closure orders, a claimed Covered Cause of Loss. However, the closure orders could not have been issued as a result of the closure orders; instead, as the complaint alleged, they were issued as the direct result of COVID-19 - a cause of loss that fell within the virus exclusion.

Missouri Federal District Court Again Denies Insurer's Motion to Dismiss COVID-19 Claim

    Following its earlier decision, the federal district court rejected the insurer's motion to dismiss claims for business interruption due to closure orders caused by COVID-19. Blue Spring Dental Care, LLC v. Owners Ins. Co., 2020 U.S. Dist. LEXIS 172639 (W.D. Mo. Sept. 21, 2020).

    Plaintiffs were four dental clinics impacted by Stay at Home Orders issued by state and local officials. Plaintiffs alleged that  COVID-19 and the orders forced them to suspend most of their business operations and deprived them of the use of their dental clinics, thus causing them to suffer "a direct physical loss."

    Plaintiffs submitted claims for business interruption to Owners, who denied the claims. Plaintiffs sued and Owners moved to dismiss. 

    The court relied upon its prior decision in Studio 417, Inc. v. Cincinnati Ins. Co. [post here]. As in Studio 417, plaintiffs adequately pled a claim for direct physical loss. They alleged that because "it is likely customers to the insured properties over the recent month were infected with the coronavirus," they "suspended operations due to COVID-19 to prevent physical damage to the premises by the presence or proliferation of the virus and the physical harm it could cause persons present there" and that "customers cannot access the property due to the Stay at Home Orders for fear of being infected with or spreading COVID-19." Plaintiffs plausibly alleged that COVID-19 physically attached itself to their dental clinics, thereby depriving them of the possession and use of the insured properties.

    Nevertheless, Owners contended that even if plaintiffs could demonstrate direct physical loss, they did not suspend their dental clinic operations because they continued to see patients on an emergency basis. The court found that plaintiffs' allegations that three of their four dental clinics totally ceased all clinical operations satisfied their pleading burden. 

    The court also found plaintiffs adequately pled claims for Extra Expense and Civil Authority. Owner's motion to dismiss was denied in its entirety. 

First Judgment Entered for Policyholders in COVID-19 Claim

    The insureds' motion for summary judgment seeking coverage for business interruption due to the COVID-19 pandemic was granted by the North Carolina Superior Court. North State Deli, LLC, et al. v. The Cincinnati Ins. Co., No. 20-CVS02569, Order Granting Plaintiffs' Motion for Partial Summary Judgment (Super. Ct. N.C., entered Oct. 9, 2020). This was the first ruling in the country finding in favor of policyholders for coverage for business income loss resulting from the COVID-19 pandemic. The order is here [Order].

    Plaintiffs operated seven restaurants in North Carolina. The restaurants were insured by "all-risk" policies from Cincinnati, which offered business interruption coverage. The policies defined "loss" as "accidental physical loss or accidental physical damage." 

    Plaintiff sought coverage for losses arising out of the COVID-19 pandemic. Beginning in March 2020, governmental authorities entered orders mandating the suspension of business operations at various establishments, including plaintiffs' restaurants. Coverage for business interruption was denied and plaintiffs sued. Plaintiffs moved for summary judgment.

    The court initially noted that the policies did not define "direct," "physical loss," or "physical damage." Dictionary definitions led the court to determine that "direct physical loss" described the scenario where business owners and their employees, customers, vendors, suppliers, and others lost the full range of rights and advantages of using or accessing their business property. This was precisely the loss caused by the government orders. Plaintiffs were expressly forbidden by government decree from accessing and putting their property to use for the income-generating purposes for which the property was insured. Therefore, this loss was unambiguously a "direct physical loss" and the policies provided coverage. 

    The policies provided coverage for "accidental physical loss or accidental physical damage." Cincinnati's argument that the policies require physical alteration conflated "physical loss" and" physical damage." The use of the conjunction "or" meant that a reasonable insured could understand the terms "physical loss" and "physical damage" to have distinct and separate meanings. Under Cincinnati's argument, however, if "physical loss" also required structural alteration to property, then the term "physical damage" would be rendered meaningless.

    Finally, nothing in the policies excluded coverage for plaintiffs' losses. The policies did not exclude virus-related causes of loss.

    Therefore, the policies provided coverage for business income for plaintiffs' loss of use and access to covered property mandated by the government orders as a matter of law. The motion for partial summary judgment was granted. 

    

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.