Courts Dismiss COVID-19 Business Interruption Claims

On January 13, 2022, the U.S. Court of Appeals for the Second Circuit affirmed the district court’s order dismissing several delicatessens’ COVID-19 business interruption complaint against Cincinnati Insurance Company. Finding the parties’ arguments are foreclosed by the Second Circuit’s recent decision in 10012 Holdings, Inc. v. Sentinel Insurance Co. because the policy terms “are not materially different from” the policyholder’s in 10012 Holdings, the court held the delis did not plead any physical damage to their insured property. Order at 3. The case is Rye Ridge Corp. v. Cincinnati Insurance Co.

On January 12, 2022, the U.S. Court of Appeals for the Sixth Circuit affirmed the Eastern District of Kentucky’s dismissal of a dental practice’s COVID-19 business income complaint against Cincinnati Insurance Company. Relying on “a broad circuit consensus” that has “uniformly interpreted this ‘physical loss’ language not to cover similar pandemic-related claims,” the court held the dental practice suffered no direct physical loss or damage, as understood by the “average person.” Order at 4, 7, 9. Instead, the pandemic and resulting government restrictions caused intangible business losses. Id. at 7. The case is Ryan P. Estes, D.M.D., M.S., P.S.C. v. Cincinnati Insurance Co.

On January 7, 2022, the district court for the Eastern District of Pennsylvania granted Zurich American Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by the manager of over a dozen restaurants. The court concluded that the policy’s microorganism exclusion barred coverage, finding that “the ‘threat of COVID-19’ falls squarely within the Microorganism Exclusion[.]” Order at 8. The court further found that the insured’s claim failed, because the presence of COVID-19 “does not cause physical loss of or damage to property,” and “the threat of COVID-19 certainly does not cause such loss or damage.” Id. at 10-11 (emphasis in original). The case is Big Red Mgmt. Corp. v. Zurich Am. Ins. Co.

New Business Interruption Suits Against Insurers:

Health and fitness facilities sued AGCS Marine Insurance Company and Allianz Global Corporate & Specialty in federal court (D. Conn.) for breach of contract and breach of the covenant of good faith and fair dealing. The policy allegedly provides loss of earnings and extra expense coverage. Complaint at ¶ 4. The Complaint alleges that “[t]he pandemic has caused ‘direct physical loss of or damage to property’ under the Policy by depriving the Plaintiffs of their business properties, making the Plaintiffs’ business properties imminently dangerous unless the Plaintiffs made repairs to property, and transforming the Plaintiffs’ business properties from a state in which they could be used for their intended, insured purposes into a state in which they could not be so used.” Id. at ¶ 41. The Complaint further alleges that the policy’s virus exclusion does not apply and if the insurer “intended to exclude loss of Earnings and Extra Expense caused by a pandemic, Defendants could have or should have, addressed the known pandemic risk directly.” Id. at ¶ 58. The case is Healthtrax Int’l, Inc., et al. v. AGCS Marine Ins. Co., et al.

A machine and tool manufacturing company sued Cincinnati Insurance Company in Pennsylvania state court (Allegheny County) for declaratory judgment, breach of contract, and bad faith. The plaintiff’s “all risk” policy allegedly provides business income and extra expense coverage. Complaint at ¶¶ 5, 10. The complaint alleges the plaintiff suffered an “accidental physical loss” because “[t]he Covid [sic] pandemic or its repercussions were not expected.” Id. at ¶¶ 33-34. The complaint also alleges Cincinnati acted in bad faith by allegedly misrepresenting facts in the claims file and deciding to deny the plaintiff’s claim without conducting a good faith investigation. Id. at ¶¶ 64-68. The case is Jennison Corp. v. Cincinnati Ins. Co.

A restaurant owner and operator sued Erie Insurance Property and Casualty Company in Pennsylvania state court (Allegheny County) for declaratory judgment, breach of contract, and bad faith. The plaintiff’s “all-risk” policy allegedly provides business income and civil authority coverage. Complaint at ¶¶ 15-16. The complaint alleges the plaintiff suffered a direct physical loss of covered property because COVID-19 and related civil authority orders “resulted in a suspension of their business operations.” Id. at ¶ 32. The complaint also alleges Erie acted in bad faith by denying the plaintiff’s claim without conducting an adequate investigation. Id. at ¶ 46. The case is Onion Maiden, LLC v. Erie Ins. Prop. & Cas. Co.