COVID-19 Business Interruption Insurance Litigation – One Year Later
As we have written here previously, businesses across the country have brought lawsuits against their insurers seeking coverage for losses related to COVID-19. According to the COVID Coverage Litigation Tracker at the University of Pennsylvania Carey Law School, over 1,500 suits have been filed since March 2020 in state and federal court. Some interesting statistics based on that information:
Over one third of the cases have been filed by food services establishments.
Almost one quarter of the cases were brought as class actions.
Approximately one third of the cases involved insurance policies that did not contain a virus exclusion.
Insureds have been much more successful in state court than federal court. Insurers have obtained a dismissal in 93% of the 241 cases decided in federal court, but only 54% of the 58 cases decided in state court.
Appeals have been filed in 107 cases and, surprisingly, almost all have been filed by insureds who had their cases dismissed. Insurance companies have only filed appeals in four cases.
Certain jurisdictions have been more favorable for insureds. We have written previously about Studio 417, Inc. v. Cincinnati Insurance Company, No. 6:20-cv-03127-SRB (W.D. Mo. Aug. 12, 2020), in which a federal district court in the Western District of Missouri denied the insurer’s motion to dismiss because the insureds had adequately alleged that they suffered a physical loss. That court has reached a similar ruling in two additional cases. See Blue Springs Dental Care v. Owners Ins. Co.; K.C. Hopps, Ltd. v. The Cincinnati Ins. Co. The most favorable jurisdiction for insureds appears to be Ohio state court where motions to dismiss have been denied in 11 of the 13 cases with reported decisions. Other favorable jurisdictions include state court in Washington (insurers have lost both cases with reported decisions) and state court in Oklahoma (granting two policy holders’ motions for summary judgment).
Although Ohio state court judges have been most favorable to insureds’ attempts to secure coverage, every COVID-19 related business interruption case is fact specific and the outcome of a motion will be based on the allegations in the complaint and the language of the insurance policies involved, including whether they include a virus exclusion and how that provision is drafted. For example, a recent case in Ohio state court, McKinley Development Leasing co. Ltd., et al v. Westfield Insurance Co., determined that a virus exclusion did not apply after analyzing the specific wording of the exclusion. The exclusion at issue precluded coverage for “loss or damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is incapable of inducing physical distress, illness or disease,” but did not specifically include pandemics. In finding that the exclusion did not apply to the insured’s claims, the court stated:
It is obvious to this Court that a virus is not the same as a pandemic. The insurer, being the one who selects the language in the contract, must be specific in its use; an exclusion from liability must be clear and exact in order to be given effect. . . . More importantly, this Court questions if Westfield intended for a “pandemic” to be excluded from coverage, why didn’t it explicitly exclude it? After all, Westfield had control and wrote the policy.
Also, the landscape in Ohio will likely be impacted by the court’s decision in Neuro-Communication Services, Inc. v. Cincinnati Insurance Company, No. 4:20-CV-1275 (N.D. Ohio filed June 10, 2020), to certify to the Ohio Supreme Court the following question:
Does the general presence in the community, or on surfaces at a premises, of the novel coronavirus known as SARS-CoV-2, constitute direct physical loss or damage to property; or does the presence on a premises of a person infected with COVID-19 constitute direct physical loss or damage to property at that premises?
This is a question that has arisen in many other cases, but no appellate level court has yet ruled on the question. Thus, that decision will be not only an important milestone for COVID-19 business interruption lawsuits in Ohio, but in other jurisdictions too.
Only one case has gone to trial so far. That case, Cajun Conti LLC v Certain Underwriters at Lloyds, was the first COVID-19 business interruption case filed in March 2020 and a bench trial took place December 14-16, 2020 in state court in New Orleans. Despite the fact that the policy at issue in Cajun Conti contained no virus exclusion, the trial resulted in a judgment in the insurer’s favor. While the court did not include a written legal opinion along with its February 10, 2021 judgment, the outcome suggests that the court agreed with the insurer’s main argument that the virus itself causes no property damage within the meaning of relevant policy provisions.
Despite the trend favoring insurers, especially in federal court, insureds have continued to file business interruption lawsuits, but at a lower rate than in spring and summer of 2020. Although there have been fewer suits filed, within the last month, several major business such as the Los Angeles Lakers, Sacramento Downtown Arena (including the Sacramento Kings), Ceasars Entertainment, Madison Square Garden (including the Knicks and Rangers), Hooters and Planet Hollywood have filed suits seeking coverage for sizeable losses caused by COVID-19. Only the Madison Square Garden and Ceasars cases were filed in state court. It will be interesting to see whether the insurers seek to remove those cases to federal court.
Thus, it appears that we are still in the early stages of what will likely be a multi-year process to resolve the COVID-19 business interruption insurance cases throughout the country. Stay tuned for additional developments, especially as appellate courts begin to address these issues.