Coverage Was Not In the Cards for Circus Circus Casino, Holds Ninth Circuit

By Max H. Stern and Holden Benon

Yesterday, the United States Court of Appeals for the Ninth Circuit issued a succinct but well-reasoned decision that there was no coverage for a Las Vegas Hotel & Casino’s COVID-19-related business interruption loss under the coverage provided by an “all risks” insurance policy. See Circus Circus LV, LP v. AIG Specialty Ins. Co., No. 21-15367 (9th Cir. Apr. 15, 2022).

Even though Nevada law governed the analysis, the court’s written opinion leaned heavily on appellate authorities that applied California law (in particular, the California Court of Appeal’s Inns-by-the-Sea decision and the Ninth Circuit’s Mudpie decision).  The Circus Circus court followed the Inns-by-the-Sea causation analysis in holding that, despite Circus Circus’ allegation that the coronavirus was present on its premises, it failed to identify any direct physical damage to its property caused by the virus which led to the Casino’s closure. “Rather,” the court observed, “the allegations surrounding Circus Circus’s closure are based on the local Stay at Home Orders.”  Citing Mudpie, the court also held that Circus Circus failed to allege it suffered a direct physical loss of its property, reasoning the loss must be due to a “distinct demonstrable, physical alteration of the property.”

The  Circus Circus decision adds to the line of appellate authorities that have adhered to the same reasoning articulated in the initial COVID-19 appellate decisions that came down last year.  In the cases that are still currently pending, the odds certainly seem to favor the carriers.

Ninth Circuit Applies Nevada Law and Finds No Coverage for COVID-19 Business Interruption Loss

By Max H. Stern and Holden Benon

Late last week, the United States Court of Appeals for the Ninth Circuit ruled there was no coverage for the policyholder’s COVID-19-related business interruption loss under the coverage provided by a commercial property policy.  See Levy Ad Group, Inc. v. Federal Ins. Co. et al., No. 21-15413 (9th Cir. Mar. 17 2022, applying Nevada law).  In reaching its decision that the insured’s economic losses did not constitute “direct physical loss or damage,” the Levy court simply stated it agreed with “the numerous published decisions interpreting nearly identical policy language . . . and unanimously concluding coverage does not exist.”

Levy represents the first appellate authority applying Nevada law ruling to these issues in the COVID-19 context, and we are confident it will not be the last to come down in favor of the insurers.  Earlier this month, the Ninth Circuit heard oral arguments in Circus Circus LV, LP v. AIG Specialty Insurance Co., another COVID-19 business interruption case that originates in the Silver State.  With Levy now decided, it seems unlikely that Circus Circus will break ranks for the “numerous published decisions” in the insurers’ favor.

If you have any questions regarding the Levy decision, or questions regarding business interruption insurance issues generally, please feel free to contact us.  Duane Morris has an extensive insurance coverage practice within the Ninth Circuit states and beyond.

California’s Highest Court Rejects Inns-by-the-Sea’s Petition for Review

By Max H. Stern and Holden Benon

This week, the California Supreme Court declined to hear the Policyholder’s appeal of the Court of Appeal’s decision in The Inns by the Sea v. California Mutual Ins. Co., which we previously reported on. For those tracking the COVID-19 business interruption appellate landscape, this should come as no surprise.  The Court of Appeal’s decision is well-reasoned, and it is aligned with many COVID-19 business interruption decisions across the nation that have reached very similar conclusions.  Policyholder attorneys expressed it is “hard to feel hopeful at this point.”  We can understand why.

Carriers Enjoy Unanimous Success in Recent Wave of COVID-19 Business Interruption Decisions in Federal Appeals (Update)

By: Max H. Stern & Holden Benon

Recently, we began to see real decisions being made by the appellate courts on COVID-19 Business Interruption issues.  The U.S. Circuit Courts of Appeals have established a uniformly favorable trend for insurance carriers – these courts have affirmed the district court decisions that have ruled in favor of the insurers, and in one case, the Sixth Circuit vacated a district court’s decision that ruled in favor of the policyholder. Since our original blog post on this issue in October, this trend continued in December with a Tenth Circuit decision.

Ninth Circuit

Starting with the Ninth Circuit (where Duane Morris’ insurance group maintains a strong presence), carriers have enjoyed successful outcomes in a trio of much-anticipated decisions.  In Mudpie, Inc. v. Travelers Casualty Insurance Company of America, Case No. 20-16858, 2021 WL 4486509, at *1 (9th Cir. Oct. 1, 2021) (applying California law), Mudpie, a San Francisco-based children’s store, brought a proposed class action asserting breach of contract and bad faith against its property insurance carrier.  As in many COVID-19 business interruption cases, the carrier had denied its insured “Business Income” and “Extra Expense” coverage in 2020, after government authorities issued public health orders in response to the COVID-19 pandemic.  Id. at *2.  (For more background on business interruption insurance, please refer to one of our earlier blog posts on this topic.)

Mudpie made the argument that its inability to use its premises amounted to “direct physical loss or damage to” its property, sufficient to bring its claim within the scope of the policy’s business interruption coverage.  Id.  The court rejected this argument, however, reasoning that the phrase “direct physical loss of or damage to” requires some kind of physical alteration to the property in question.  Id. at *5.  The court also held that the policy’s virus exclusion bars coverage for the insured’s claims.  Id. at *7.  As many policyholders have tried arguing, Mudpie claimed that its losses were not subject to the policy’s virus exclusion because its losses were caused not directly by the virus, but by stay-at-home orders that restricted the insured’s use of its property.  But the court didn’t buy this argument because Mudpie failed to meet the “efficient proximate cause” test.  Id. (“Mudpie does not plausibly allege that ‘the efficient cause,’ i.e., the one that set others in motion was anything other than the spread of the virus throughout California, or that the virus was merely a remote cause of its losses.”) (internal citation omitted). In the end, the court affirmed the district court’s decision ruling in favor of the insurer.  Id. at *7.

Continue reading “Carriers Enjoy Unanimous Success in Recent Wave of COVID-19 Business Interruption Decisions in Federal Appeals (Update)”

Yet Another Win for Insurers on COVID-19 Business Interruption Claims: The Inns by the Sea California Court of Appeal Decision

 

By Max H. Stern and Holden Benon

The first California state appellate decision on COVID-19 Business Interruption coverage is now in the books, and it’s one more victory for insurers.  In The Inns by the Sea v. California Mutual Ins. Co., Case No. D079036 (Cal. Ct. App. 4th Dist., Div. 1, Nov. 15, 2021), the California Court of Appeal for the Fourth District found there was no coverage, notwithstanding the absence of a virus exclusion in the relevant policy.  The court’s 36-page opinion provides a thorough and careful analysis of several important COVID-19-related business interruption issues, some highlights of which we summarize below.

Inns-by-the Sea operates lodges in the California coastal communities of Carmel and Half Moon Bay.  In March of 2020, Inns closed its facilities in response to shutdown orders issued by Monterey and San Mateo counties.  Then, Inns made a claim under its property insurance policy for its claimed loss of business income caused by the pandemic.  (For more background on business interruption insurance, refer to one of our earlier blog posts on this topic.)  Inns’ insurer denied coverage, and Inns filed suit in Monterey Superior Court.

Continue reading “Yet Another Win for Insurers on COVID-19 Business Interruption Claims: The Inns by the Sea California Court of Appeal Decision”

California Raises the Price of Survival Actions – Will Allow Recovery of Decedent’s Pain, Suffering, or Disfigurement

By: Kathryn K. Schultz

Long-standing California law explicitly precluded recovery of damages for a decedent’s pain, suffering, or disfigurement in a survival action (i.e. a cause of action that survives the death of a plaintiff and passes to decedent’s successor in interest per Cal. Code of Civil Procedure [“C.C.P.”] § 377.30). On October 1, 2021, California Governor Gavin Newsom approved Senate Bill Number 447 amending C.C.P. Section 337.34 to permit recovery of such damages.  The new law takes effect on January 1, 2022 and will increase the price to resolve survival actions in California.

The new law applies to (1) new cases filed on or after January 1, 2022, and before January 1, 2026, and (2) to an action or proceeding that was granted trial preference pursuant to C.C.P. Sec. 36 before January 1, 2022.  Plaintiffs who recover damages pursuant to this new law are required to report to the Judicial Council, who will in turn report to the Legislature for evaluation of whether to extend or further amend the law in 2026.

Senate Bill 447 was co-sponsored by the Consumer Attorneys of California and Consumer Federation of California.  The main three arguments in support of the bill were: (1) California was one of only five states that prohibits recovery of a decedent’s pain and suffering in a survival action; (2) the prior law provided a “death discount” to defendants – creating an incentive to act in bad faith and delay trials hoping the plaintiffs will die in order to receive this discount; and (3) the incentive to delay trials created a burden on the court system.

Continue reading “California Raises the Price of Survival Actions – Will Allow Recovery of Decedent’s Pain, Suffering, or Disfigurement”

Liability or Opportunity in Insuring Commercial Drones?

Developments in drone technology are often heralded as having the potential to change the landscape of business operations, most prominently in the consumer goods shipping sector. Yet, the development of federal regulation and guidance on the commercial use of drones lags behind the pace of innovation. Meanwhile, litigation highlighting the common law tort risks inherent in drone operations has been percolating in jurisdictions around the country. It is no surprise, then, that users of the technology face major uncertainty in terms of their exposure to liabilities, both known and unknown.

To read the full text of this article by Duane Morris attorneys Holden Benon and Matthew Decker, please visit the Insurance Journal website.

Business Interruption Insurance Lawsuit and the Virus Exclusion Related to COVID-19

By Sheila Raftery Wiggins

The District of New Jersey granted a motion to dismiss a restaurant owner’s purported class action lawsuit seeking business interruption coverage by analyzing: (1) the New Jersey Governor’s Executive Order and (2) the policy language, in a commercial all-risk property damage policy, that excluded coverage for losses covered by viruses.

In N&S Restaurant LLC v. Cumberland Mutual Fire Insurance Company, No. 20-05289 (RBK/KMW), plaintiff filed a claim for loss of business income caused by the New Jersey Governor’s Executive Order which suspended the operation of non-essential retail businesses in response to the ongoing COVID-19 pandemic.  The insurance policy provides coverage for “direct physical loss of or damage to Covered Property at the described premises . . . caused by or result[ing] from any Covered Cause of Loss.”  Plaintiff requested coverage under three separate policy provisions: (1) the “Business Income” provision; (2) the “Extra Expense” provision; and (3) the “Civil Authority” provision.

The “Business Income” provision provides as follows:

We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your “operations” during the “period of restoration”. The suspension must be caused by direct physical loss of or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss. With respect to loss of or damage to personal property in the open or personal property in a vehicle, the described premises include the area within 100 feet of such premises.

The “Extra Expense” provision provides as follows:

We will pay necessary Extra Expense you incur during the “period of restoration” that you would not have incurred if there had been no direct physical loss or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.

The “Civil Authority” provision provides as follows:

When a Covered Cause of Loss causes damage to property other than property at the described premises, we will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises

The policy also denies coverage under several enumerated exclusions. Under the Virus Exclusion, Defendant “will not pay for loss or damage caused directly or indirectly by” any “Virus or Bacteria,” which is any “virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”  The Virus Exclusion includes an anti-concurrent causation preamble, which states that “[s]uch loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss[.]”

Defendant denied Plaintiff’s request for coverage, citing two primary reasons: (1) the claim was barred by the Virus Exclusion, and (2) the claim did not arise out of physical loss or damage as required by each of the applicable provisions.  Defendant asserted that because COVID-19 caused the Executive Order mandating closure of all non-essential businesses, the Virus Exclusion applies.

Plaintiff asserted that the Virus Exclusion does not apply because the “cause of Plaintiff’s loss was the Closure Orders, not the coronavirus.” Plaintiff supports this point by asserting that its claimed loss is not for decontaminating its premises as a result of a coronavirus infestation.

When analyzing Defendant’s motion to dismiss, the District Court focused on the anti-concurrent causation clause of the Virus Exclusion which specifically states that loss caused directly or indirectly by a virus is excluded. The District Court concluded that there is no doubt that COVID-19, a virus, caused New Jersey’s Governor to issue the Executive Order mandating closure of Plaintiff’s restaurant. Therefore, COVID-19 is still a cause of the closure because the Virus Exclusion specifically provides for such indirect causation.  The District Court further stated that there is no requirement, as Plaintiff suggests, for the virus to have physically caused the loss, such as via contamination of the property. The District Court analyzed that although costs for decontamination would certainly be a direct loss caused by the virus, this is not the only possible loss that would trigger the Virus Exclusion. The District Court ruled that by its plain language, the Virus Exclusion applies, barring coverage

This District Court case is one of a growing number of rulings which dismiss similar cases. We expect that this body of law will continue to develop.

Panel Rejects Consolidation Of All Federal Business Interruption Cases

By Damon Vocke

On July 31, the seven-member Judicial Panel on Multi-District Litigation (JPML) heard oral argument of extraordinary length on the potential consolidation of all federal cases involving business interruption coverage relating to COVID-19 and/or COVID-19 shutdown orders, totaling approximately 449 such federal cases, roughly 200 of which are putative class actions. Continue reading “Panel Rejects Consolidation Of All Federal Business Interruption Cases”

Lengthy Oral Argument on Potential Consolidation of Business Interruption Coverage Cases Related to COVID-19

By Damon Vocke

On July 30, the Judicial Panel on Multi-District Litigation (the Panel) heard oral argument of extraordinary length on the potential consolidation of all the federal cases involving business interruption coverage relating to COVID-19 and/or the COVID-19 shut-down orders.  There are some 449 such federal cases, approximately 200 of which are putative class actions.

Normally, the arguments for consolidation are short.  This one was not.  This was likely due to the importance of the pandemic-related litigation, as well as the multiplicity of positions.

Several policyholder plaintiffs argued for national consolidation.  Insurer-specific consolidation was the most common fall-back position among the policyholder plaintiffs.  Several policyholder plaintiffs argued against any consolidation – most notably, David Boies.  Counsel for some of the insurer defendants argued on behalf of the industry against any consolidation. Continue reading “Lengthy Oral Argument on Potential Consolidation of Business Interruption Coverage Cases Related to COVID-19”

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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