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”

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

By: Max H. Stern & Holden Benon

It has been a busy year and a half since the earliest COVID-19-related Business Interruption lawsuits were filed, and we are now seeing real decisions being made by the appellate courts on these claims.  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.

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”

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”

Bid to Invalidate Virus Exclusion in Pennsylvania Federal Court

Berkshire Hathaway and one of its units on Monday urged a Pennsylvania federal court to toss a restaurant’s suit seeking insurance coverage for losses caused by the COVID-19 pandemic, arguing that a virus exclusion “plainly applies” to the restaurant’s claims.

Berkshire Hathaway and National Fire are represented by Robert L. ByerJulie S. Greenberg and Damon N. Vocke of Duane Morris LLP.

To read the full text of this article, please visit the Law360 website.

Business Interruption Insurance, COVID-19 and Direct Physical Damage under New York Law

By Damon Vocke and David T. McTaggart

To date, approximately 150 business-interruption insurance coverage lawsuits have been filed in federal courts arising from COVID-19 and related government-ordered restrictions.  In what appears to be the first substantive ruling on the merits in these cases, the Southern District of New York recently ruled against an insured who could not meet its burden to show a likelihood of success in establishing “property damage” due to the novel coronavirus to support its claim for injunctive relief.  See Social Life Magazine, Inc. v. Sentinel Ins. Co., 1:20-cv-03311-VEC (Dkt. 24-1, S.D.N.Y. May 14, 2020).  Judge Caproni expressed sympathy “for every small business that is having difficulties during this period of time,” but concluded that “New York law is clear” in requiring actual property damage to trigger business interruption coverage. Because the insured’s coverage theory rested on a government shutdown in the absence of any property damage, the Court denied its preliminary injunction motion, reasoning “this is just not what’s covered under these insurance policies.”

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Insurer Seeks Declaration that Insured not Entitled to Coverage for COVID-19-Related Losses in Excess of Aggregate Limits

by: Gina Foran

This week, U.S. Specialty Insurance Company (“USSIC”) filed a declaratory relief action in the U.S. District Court for the Southern District of Texas seeking a judicial declaration that  its insured, Gartner Group, Inc. (“Gartner”), is not entitled to coverage in excess of the Event Cancellation Insurance policy’s aggregate limit of $150 million for COVID-19-related losses.

USSIC issued an event cancellation policy to Gartner, a global research and advisory company that holds several events and conferences each year. Due to the COVID-19 pandemic, Gartner cancelled or postponed a majority of its events scheduled for 2020. In the complaint, USSIC states that it accepted Gartner’s submitted claims and that these claims will potentially exhaust the policy’s aggregate limit of indemnity of $150 million.

Gartner allegedly takes the position that it has a right to coverage in excess of the aggregate limit of $150 million based on a reinstatement of limits provision of the policy that allows the insured to request reinstatement of “that part of the Limit of Indemnity shown in the Schedule utilized by way of any potential or actual loss payment under this insurance.” USSIC states that  the reinstatement of limits provision has no impact on the aggregate limit of indemnity, which it states is capped at $150 million. Instead, USSIC states, the reinstatement of limits provision only authorizes Gartner to reinstate that part of the original limit of indemnity of an event/conference listed in the schedule of events that is eroded by payment of actual or potential loss.

USSIC additionally states that Gartner is not entitled to an increase of indemnity limits for COVID-19-related losses under the fortuity doctrine and known loss rule, as well as a prior known loss exclusion in the policy, all of which deal with whether insurance is available to an insured for known losses. USSIC states that because coverage under the requested reinstatement has not incepted, it should not be available because Gartner is aware of the COVID-19 pandemic.

Duane Morris Helps Insurance Industry to a Major Win on COVID Losses for Business Interruption Before the Pennsylvania Supreme Court

By Damon N. Vocke

In the bellwether case of Joseph Tambellini, Inc. v. Erie Insurance Exchange, the Pennsylvania Supreme Court was petitioned under its King’s Bench powers to assume plenary jurisdiction of an insurance coverage dispute that had been filed in the Court of Common Pleas, Allegheny County, Pennsylvania.  The high court was asked to decide critical legal issues that would have impacted thousands of other insurance claims that might arise in the future from the COVID-19 pandemic. Duane Morris was retained by insurer trade associations, including APCIA, NAMIC, PAMIC, and the Insurance Federation of Pennsylvania (the “Insurance Industry Amici”), to oppose this extraordinary petition. Continue reading “Duane Morris Helps Insurance Industry to a Major Win on COVID Losses for Business Interruption Before the Pennsylvania Supreme Court”

An Update on Congressional Efforts to Compel Coronavirus Business Interruption Insurance

By Dominica C. AndersonPhilip R. Matthews and Daniel B. Heidtke

We previously wrote about the growing number of lawsuits by insureds seeking business interruption insurance coverage for business losses in response to the novel coronavirus (here and here), and the constraints that state and federal governments should face were they to compel such coverage. We also previously detailed nationwide efforts aimed at enacting legislation compelling business interruption and contingent business interruption insurance for COVID-19 losses.

As of the date of this update, eight states have proposed a number of bills relating to business interruption insurance. Continue reading “An Update on Congressional Efforts to Compel Coronavirus Business Interruption Insurance”

Coronavirus Business Interruption Litigation Ramping up to Include Several Class Action Suits Against Single Insurers

By Dominica C. Anderson, Philip R. Matthews and Daniel B. Heidtke

As the coronavirus cases start peaking in at least some parts of the United States, the American courts are beginning to experience mounting cases relating to claims against businesses for coronavirus infections and against insurers for alleged business interruption coverage. A few weeks ago, some well-known restaurants in the United States commenced litigation against their insurers over claims for insurance coverage stemming from business interruption. These individual cases will raise a number of issues whether there is direct physical loss to covered property and whether the virus exclusions in the policies bar coverage. As a host of other types of businesses have followed by filing a number of individual suits in several states against their insurers. Last week, however, a new form of litigation has been filed with multiple class action insurance coverage lawsuits being brought by alleged representatives against single insures who are claimed to have written business interruption policies to a number of businesses in given areas or nationwide. Continue reading “Coronavirus Business Interruption Litigation Ramping up to Include Several Class Action Suits Against Single Insurers”