June 15, 2022

Sunstone Hotel Investors Inc. v. Endurance American Specialty Insurance Co., Case No. 8:20-cv-02185 (Central District California, June 15, 2022)

Insurance Coverage Implicated: Environmental Impairment Liability Policy.

Key Decision: On June 15, 2022, a federal district court in California denied an insurer's partial motion to dismiss a hotel's claim for COVID-19-related damages business interruption claim under its environmental liability policy.

The Court distinguished the environmental liability policy at issue in this case with the  "run-of-the-mill" commercial property policies at issue in most COVID-19 business interruption cases. It noted that Sunstone paid a significant premium for environmental liability coverage, which expressly included losses resulting from a virus. 

At the summary judgment phase, the case turned primarily not on whether there was coverage, but how to define the "interruption period" (and, therefore, how to measure the Sunstone's damages). The Court rejected the insurer's argument that the "interruption period" ended when California issued an emergency order closing nonessential businesses on March 23, 2020. Instead, it found that as long as COVID-19 continued to cause Sunstone's business interruption losses, the restoration period continued.

For more information on COVID-19-related insurance coverage cases filed in state and federal courts in 2020 and 2021, including a summary of the Cajun Conti trial court decision, see Practice Note, Key COVID-19 Insurance Coverage Cases Tracker (US): 2020 and 2021.

For more information on business interruption insurance, see Practice Note, First-Party Property Insurance Policies: Business Interruption Coverage and Filing a Business Interruption Claim Checklist.

June 15, 2022

Cajun Conti v. Certain Underwriters at Lloyd’s, London, No. 2021-CA-0343 (La. App. June 15, 2022)

Insurance Coverage Implicated: Business Interruption.

Key Decision: On June 15, 2022, the Louisiana Court of Appeals became the second state appellate court in as many days to hold that business interruption insurance provides coverage for “direct physical loss of or damage to” the insured premises as a result of contamination by COVID-19. (Earlier this week a New York appellate court held the New York Botanical Garden is entitled to COVID-19-related business interruption coverage under a pollution liability policy.)

The appellate court reversed a trial court decision barring coverage. In so doing, it held:

The two recent state appellate court decisions in Louisiana and New York in favor of policyholders go against the vast majority of federal courts of appeals decisions, which have found that COVID-19-related losses are not covered. However, they are in line with decisions from other state courts, which have been receptive to COVID-19-related business interruption claims.

For more information on COVID-19-related insurance coverage cases filed in state and federal courts in 2020 and 2021, including a summary of the Cajun Conti trial court decision, see Practice Note, Key COVID-19 Insurance Coverage Cases Tracker (US): 2020 and 2021.

For more information on business interruption insurance, see Practice Note, First-Party Property Insurance Policies: Business Interruption Coverage and Filing a Business Interruption Claim Checklist.

June 14, 2022

New York Botanical Garden v. Allied World Assurance Co. (U.S.) Inc., Case No. 2021-04319, 2022 NY Slip Op 03871 (New York App. Div., First Dept. June 14, 2022)

Insurance Coverage Implicated: Pollution liability policy.

Key Decision: On June 14, 2022, the New York Appellate Division's First Department held the New York Botanical Garden is entitled to COVID-19-related business interruption losses under its pollution liability policy.

The Botanical Garden filed breach of contract and bad faith allegations against its insurer, Allied World, after it denied the Botanical Garden's claim for losses that the Botanical Garden suffered as a result of COVID-19-related shutdown orders. The Botanical Garden alleged these the contingent business interruption provision of its pollution liability policy covered these losses.

Allied World did not dispute that COVID-19 "constitutes a pollution incident as defined in the Policy." However, it claimed that the Botanical Garden's losses were only covered if it was completely denied access to its property. (Id. at 2.)

The Court held that the Botanical Garden's losses  were covered by its pollution liability policy's contingent business interruption provision. It noted that this provision covers losses related to "the necessary suspension of your business operations at a location owned or leased to you as a result of an order by a government body or authority denying access to the location," and contemplates "coverage for periods when plaintiff would have some temporary access to the property." (Id. at pp. 1-2.) 

The Court further held that the Botanical Garden's bad faith cause of action, which was premised on the allegation that "defendant did not conduct a complete or fair investigation of its claim ... and simply denied it in accordance with a business policy of denying COVID-related business interruption claims," could proceed (Id. at 3.)

The decision is an important win for policyholders, but it isn't clear if it will have far-reaching effects because the language at issue in the policy is distinct from most other business interruption coverage grants. Specifically, the policy does not require physical damage to the insured's property, which is the language at issue in most COVID-19-related business interruption coverage cases. 

For more information on COVID-19-related insurance coverage cases filed in state and federal courts in 2020 and 2021, including a summary of the Cajun Conti trial court decision, see Practice Note, Key COVID-19 Insurance Coverage Cases Tracker (US): 2020 and 2021.

For more information on business interruption insurance, see Practice Note, First-Party Property Insurance Policies: Business Interruption Coverage and Filing a Business Interruption Claim Checklist.

April 22, 202

Wakonda Club v. Selective Ins. Co. of Am., Iowa Supreme Court, No. 21–0374 (April 22, 2022)

Insurance Coverage Implicated: Business Interruption.

Key Decision: On April 22, 2022, the Iowa Supreme Court became the second state supreme court in the nation to hold that business interruption losses related to COVID-19 emergency orders did not trigger coverage under their commercial property insurance policies.

The plaintiff, a private golf and country club in des Moines, made a claim under its all-risk commercial property insurance policy for income it lost during the time it closed its facilities in compliance with COVID-19-related emergency orders. The club sued its insurer, Selective Insurance, after Selective denied the claim. The district court granted Selective's motion for summary judgment and Selective appealed.  , the club sued. 

In a unanimous decision, the Iowa Supreme Court held that "the language 'direct physical loss of' property requires a physical aspect to the loss of the property before coverage is triggered;" therefore,  "loss of use, without something more," cannot constitute "direct physical loss of" property (Opinion at pp. 3-4; 9-19). The court did not address two other issues Wakonda raised on appeal:

The court also noted that its decision aligned with federal district courts interpreting Iowa law and all state appellate courts that addressed the issue of whether loss of use due to government orders in response to the COVID-19 pandemic results in physical loss of property (Id. at pg. 19).

For more information on COVID-19-related insurance coverage cases filed in state and federal courts in 2020 and 2021, see Practice Note, Key COVID-19 Insurance Coverage Cases Tracker (US): 2020 and 2021.

For more information on business interruption insurance, see Practice Note, First-Party Property Insurance Policies: Business Interruption Coverage and Filing a Business Interruption Claim Checklist.

April 21, 2022

Verveine Corp, et al, v. Strathmore Ins. Co., et al, Massachusetts Supreme Judicial Court, No. SJC-13172 (April 21, 2022)

Insurance Coverage Implicated: Business Interruption.

Key Decision: On April 21, 2022, Massachusetts' high court held, unanimously, that three restaurants could not recover COVID-19-related business interruption losses.

The plaintiff policyholders, restaurants in Boston and Cambridge, stayed open throughout the COVID-19 pandemic but suffered declines in revenue due to state-imposed stay-at-home orders and orders restricting in-person dining. The restaurants argue they are entitled to business interruption coverage under their insurance property policies because COVID-19 rendered their properties unusable. 

In a unanimous decision, the Court held that the restaurants' losses did not stem from a "direct physical loss of or damage to property" as required by the commercial property policies at issue. The court reasoned:

The Court also noted that every federal appellate court in the country that has interpreted this language in the context of COVID-19-related losses has reached the same conclusion (Id. at 15). State supreme courts in Iowa, Ohio, Vermont, and Wisconsin have heard arguments in COVID-19-related insurance coverage cases, but none have been decided yet.

For more information on COVID-19-related insurance coverage cases filed in state and federal courts in 2020 and 2021, see Practice Note, Key COVID-19 Insurance Coverage Cases Tracker (US): 2020 and 2021.

For more information on business interruption insurance, see Practice Note, First-Party Property Insurance Policies: Business Interruption Coverage and Filing a Business Interruption Claim Checklist.

April 7, 2022

Consolidated Restaurant Operations, Inc. v. Westport Ins. Co., Supreme Court of the State of New York, Appellate Division, Index No. 450839/21, App. Case Nos. 2021-02971, 2021-04034 (April 7, 2022)

Insurance Coverage Implicated: Business Interruption.

Key Decision: On April 7, 2022, a New York Appellate Court held that COVID-19-related business losses do not trigger commercial property insurance policies.

The plaintiff, Consolidated Restaurant Operations (CRO), is a multinational company that operates full-service and franchise restaurants. CRO lost millions of dollars due to COVID-19-related closure orders. Westport, CRO's commercial property insurer, denied CRO's claim for business interruption losses based on the argument that the COVID-19 virus did not cause physical loss or damage to property. 

CRO sued Westport in New York state court. The court granted Westport's motion to dismiss. CRO appealed. The appellate court upheld the judgement. It reasoned that CRO suffered only loss of use, and loss of use does not qualify as "physical loss or damage" (Opinion at 6). 

For more information on COVID-19-related insurance coverage cases filed in state and federal courts in 2020 and 2021, see Practice Note, Key COVID-19 Insurance Coverage Cases Tracker (US): 2020 and 2021.

For more information on business interruption insurance, see Practice Note, First-Party Property Insurance Policies: Business Interruption Coverage and Filing a Business Interruption Claim Checklist.

March 9, 2022

Inns by the Sea v. California Mut. Ins. Co., No. S272450, review denied (Cal. Mar. 9, 2022)

Insurance Coverage Implicated: Business Interruption and Extra Expense.

Key Decision: On March 9, 2022, the Supreme Court of California denied a policyholder’s petition to review a lower court’s ruling that its all-risk commercial property insurance policy did not cover COVID-19-related business interruption losses.

The policyholder, Inns by the Sea, is a hotel operator that runs four beachfront resorts. COVID-19-related emergency closure orders forced it to temporarily close its resorts and layoff most of its workers. Inns by the Sea submitted a claim to its insurer, California Mutual. California Mutual denied the claim the same day, and Inns by the Sea filed suit for breach of contract and breach of the duty of good faith. 

The district court held that Inns by the Sea’s claims for business interruption and extra expense coverage failed because:

Inns by the Sea appealed. The 4th District Court of Appeals affirmed. 

Inns by the Sea filed a petition asking the California Supreme Court to review the appellate court’s decision. It argued that such review was necessary to ensure uniformity with pre-COVID case law regarding the meaning of the phrase “direct physical loss or damage” in commercial property insurance policies. The California Supreme Court refused, without comment, to hear the appeal, leaving the appellate court's ruling stand.

Previously, the 9th Circuit Court of Appeals stayed four COVID-19 coverage cases pending the outcome of Inn by the Sea’s petition. The cases had been scheduled for oral argument on March 14, 2022.

For more information on COVID-19-related insurance coverage cases filed in state and federal courts in 2020 and 2021, see Practice Note, Key COVID-19 Insurance Coverage Cases Tracker (US): 2020 and 2021.

For more information on business interruption insurance, see Practice Note, First-Party Property Insurance Policies: Business Interruption Coverage and Filing a Business Interruption Claim Checklist.

March 7, 2022

Uncork and Create LLC v. The Cincinnati Ins. Co., No. 21-1311, Order Affirming Dismissal (4th. Cir., March 7, 2022)

Insurance Coverage Implicated: Business Interruption and Extra Expense.

Key Decision: On March 7, 2022, the 4th Circuit joined the 2nd, 5th, 6th, 7th, 8th, 9th, 10th, and 11th Circuits in rejecting an insured's claim that its commercial property policy provided coverage for losses related to the COVID-19 pandemic. 

Applying West Virginia law, the 4th Circuit upheld the district court's dismissal of the policyholder's claim. It held:

(Order at pg. 1.)

The plaintiff, Uncork and Create LLC, owned two studio art locations that suffered "a substantial loss of business income" when government-mandated COVID-19 orders forced them to close (Order at pg. 4). After Cincinnati Insurance denied Uncork's claim for lost business income and extra expenses, Uncork filed a Complaint alleging that its COVID-19-related "business interruption losses" were covered because either:

(Order at pg. 6.)

Cincinnati filed a motion to dismiss. The district court granted the motion, holding that the "unambiguous terms of the policy" did not provide coverage (Order at pg. 6). Uncork filed a motion to amend the judgment or certify the issue to the Supreme Court of Appeals of West Virginia. The district court denied the motion, reasoning that under West Virginia law, the meaning of the words "physical loss" or "physical damage" is not ambiguous (Order at pg. 12).

For more information on COVID-19-related insurance coverage cases filed in state and federal courts in 2020 and 2021, see Practice Note, Key COVID-19 Insurance Coverage Cases Tracker (US): 2020 and 2021.

For more information on business interruption insurance, see Practice Note, First-Party Property Insurance Policies: Business Interruption Coverage and Filing a Business Interruption Claim Checklist.

Jan. 12, 2022

Eye Associates of New Mexico Ltd., Eye Surgery Centers of NM, LLC and Pecos Valley Surgery Center, LLC v. The Cincinnati Ins. Co., an Ohio Ins. Co., and Erica N. Johnson, Case No. D-202-CV-202006851, Order Denying Defendant Cincinnati Ins. Co.’s Motion to Dismiss (Second Judicial District Court of New Mexico, Bernalillo County, Jan. 12, 2022)

Insurance Coverage Implicated: Business Interruption and Extra Expense.

Key Decision: On January 12, 2022, the 2nd Judicial District Court of New Mexico denied defendant Cincinnati Ins. Co.'s motion to dismiss plaintiffs' complaint seeking insurance coverage for COVID-19-related business interruption damages. 

Plaintiffs are New Mexico eye surgery centers. They filed a Complaint for breach of contract and bad faith after Cincinnati denied their claim for loss of its insured premises, lost business income, extra expenses, and other business-related losses "in light of the Coronavirus and the governmental authorities' closure and limitation of its covered business premises" (Compl. at ¶ 1.)

In support of coverage, Plaintiffs argued their policy provided coverage because:

Plaintiffs also alleged that Cincinnati summarily denied coverage, "even before Eye Associates submitted its claim, that it would deny all claims related to the Coronavirus and the Governmental Orders limiting the use or access to property like Eye Associates' " (Compl. at ¶ 6).

Cincinnati moved to dismiss the Complaint. The judge denied the motion. In doing so, he followed several other state trial courts, who have been more willing to engage with the merits of policyholder arguments than federal courts.

For more information on COVID-19-related insurance coverage cases filed in state and federal courts in 2020 and 2021, see Practice Note, Key COVID-19 Insurance Coverage Cases Tracker (US): 2020 and 2021.

For more information on business interruption insurance, see Practice Note, First-Party Property Insurance Policies: Business Interruption Coverage and Filing a Business Interruption Claim Checklist.

Jan. 5, 2022

Terry Blacks’s Barbecue, LLC, et. al. v. State Auto. Ins. Co., No. 21-50078 (5th Cir. Jan. 5, 2022)

Insurance Coverage Implicated: Business Interruption, Extra Expense, and Restaurant Extension Endorsement 

Key Decision: On January 5, 2022, the 5th Circuit joined the 2nd, 6th, 7th, 8th, 9th, 10th, and 11th Circuits in holding that when used in commercial property policies, the phrase “physical loss of property” requires a tangible alteration or deprivation of property, and “cannot mean something as broad as the ‘loss of use of property for its intended purpose;’” therefore, COVID-19-related damages are not covered (Op. at pp. 9 and 11).

The policyholder, the owner of several Terry Black's Barbecue restaurants ("Terry Black's"), suffered business income losses when it had to scale back its business to comply with emergency orders issued during the COVID-19 pandemic. Terry Black's attempted to recoup its losses by filing a claim with its insurer, State Auto, under the business interruption, extra expense, and restaurant extension endorsement of its commercial property policy. (Op. at pp. 2-3.)  

Terry Black's filed suit when State Auto denied its claim. The Western District of Texas granted State Auto's Motion to Dismiss, and Terry Black's appealed. 

Applying Texas law, the 5th Circuit affirmed the decision of the district court. It noted that although Texas courts had not interpreted the specific language at issue in the business interruption and extra expense provisions, they had interpreted similar language in different policies. Specifically, it stated that both provisions are only triggered when there is "physical loss or damage," and noted that Texas courts have interpreted “physical” to mean “tangible,” and “loss” to mean “a state of fact of being lost or destroyed, ruin or destruction.” (Op. at pp. 7.) 

Applying that definition of physical loss to this case, the 5th circuit held that the policy's business interruption and extra expense provisions did not provide coverage because:

The 5th Circuit also held that policy's restaurant extension endorsement did not provide coverage because the COVID-19-related orders of civil authority at issue did not result from the actual or alleged exposure to COVID-19 at a Terry Black's location; instead, the orders resulted from “the global pandemic and the need to take measures to contain and prevent the spread of COVID-19” (Op. at pg. 12).

For more information on COVID-19-related insurance coverage cases filed in 2020 and 2021, see Practice Note, Key COVID-19 Insurance Coverage Cases Tracker (US): 2020 and 2021.

For more information on business interruption insurance, see Practice Note, First-Party Property Insurance Policies: Business Interruption Coverage and Filing a Business Interruption Claim Checklist.

Dec. 27, 2021

10012 Holdings Inc. v. Sentinel Insurance Co. Ltd., No. 21-80,  (2d Cir. Dec. 27, 2021)

Insurance Coverage Implicated: Business Interruption, Extra Expense, and Civil Authority

Key Decision: On December 27th, 2021, applying New York law, the 2d Circuit Court of appeals held there was no coverage for COVID-19-related damages under the business interruption, extra expense, or civil authority provision of an art gallery because the policyholder's property did not suffer direct physical damage.

10012 Holdings Inc., the policyholder, argued that its COVID-19-related business income losses were covered because its policy provided coverage for physical loss or damage, in the disjunctive, therefore "physical loss" include "loss of physical possession and/or direct physical deprivation" ( at *4).

The 2d Circuit rejected the argument that 10012 Holding's commercial property policy covered damages for loss of use without any accompanying direct physical damage. It held:

For more information on COVID-19-related insurance coverage cases filed in 2020 and 2021, see Practice Note, Key COVID-19 Insurance Coverage Cases Tracker (US): 2020 and 2021.

For more information on business interruption insurance, see Practice Note, First-Party Property Insurance Policies: Business Interruption Coverage and Filing a Business Interruption Claim Checklist.