What to Make of the Early COVID-19 Insurance Coverage Court Rulings
There are been at least two court rulings on the COVID-19 insurance coverage litigation. In Pennsylvania, the Supreme Court denied the extraordinary request to consolidate COVID-19 cases under what is called Kings Bench Powers. In New York, a federal court denied an emergency request for a preliminary injunction requiring an insurer to pay its policyholder immediately while the coverage case is pending. What can we read into these two rulings?
In Joseph Tambellini, Inc. v. Erie Insurance Exchange, No. 52 WM 2020 (Pa. Sup. Ct), an emergency application was made for extraordinary relief under Rule 3309 to invoke Kings Bench Powers to bring all COVID-19 cases under the court’s jurisdiction similar to an MDL case. I’ll let those who practice in Pennsylvania explain this relief. On May 14, 2020, the court denied the application in a short decision with no substantive analysis.
Also on May 14, 2020, in Social Life Magazine, Inc. v. Sentinel Insurance Co. Ltd., No. 20-cv-3311 (VEC) (S.D.N.Y.), the court denied an emergency application by order to show cause for a preliminary injunction requiring the insurer to pay insurance proceeds to the policyholder immediately for COVID-19 damages. A written decision is forthcoming, but the transcript of the telephonic argument provides useful insights into at least one court’s views on business interruption claims under property policies for COVID-19 losses.
In denying the motion, the court made the following statement on the transcript record, which reflects the sentiments of many:
I feel bad for your client. I feel bad for every small business that is having difficulties during this period of time. But New York law is clear that this kind of business interruption needs some damage to the property to prohibit you from going. You get an A for effort, you get a gold star for creativity, but this is not what’s covered under these insurance policies.
The court focused on the direct physical loss of or damage to insured property requirement in the policies. That focus centered on Roundabout Theatre Co., Inc. v. Continental Casualty Co., 302 A.D.2d 1 (N.Y. App. Div. 1st Dep’t 2002), which held that, under New York law, the language of the policy clearly and unambiguously provided business interruption coverage only where the insured’s property suffered direct physical damage. The court also had difficulty understanding how the novel coronavirus could cause physical damage to property as opposed to making individuals ill with the COVID-19 infection. The court implied that the insured’s damage was caused by the Governor’s stay-home order and not by any particular damage to the insured’s property. It will be interesting to see how all of this is set out, if at all, in the written decision.
So what can we make of these two early decisions? It may be that MDL-type applications will have difficulty succeeding given the various state’s laws and how the analysis of individual policies requires specific state law consideration. It also seems that the issue of direct physical damage will be at the forefront of all these cases. That, of course, is no surprise. Whether the apparent skepticism on the physical damage issue will lead to the granting of motions to dismiss in these cases may be revealed when the motion to dismiss is decided in Prime Time Sports Grill, Inc. v. Certain Underwriters at Lloyd’s London in Florida federal court. Stay tuned.