A federal court in Virginia refused to dismiss an insured’s suit for COVID-19 loss despite a virus exclusion in the policy. Elegant Massage, LLC v. State Farm Mut. Auto. Ins. Co., 2020 U.S. Dist. LEXIS 231935, at *2 (D. Va. Dec. 9, 2020).

A spa made a claim under its commercial property policy when it closed due to COVID-19. The spa filed a class action complaint for declaratory judgment and breach of contract. The policy at issue was an “all-risk” policy, which included coverage for Loss of Income and Extra Expense that covered all accidental and fortuitous “direct physical loss” unless the loss was explicitly excluded, and it contained a virus exclusion. The court found that the phrase “direct physical loss” had been subject to a variety of constructions in Virginia, ranging from “direct tangible destruction of the covered property to impacts from intangible noxious gasses or toxic air particles,” and that the construction most favorable to the insured was the one that must be adopted. As a result, the court interpreted the phrase to mean that the “property is uninhabitable, inaccessible, or dangerous to use because of intangible, or non-structural, sources.”

The policy included a virus exclusion with expansive anti-concurrent causation wording that excluded coverage if the virus was “in any sequence” in the “chain of causation, even if there are other causes.” The court found that the expansive anti-concurrent causation clause is not a recognized or settled doctrine in Virginia. Thus, it held that “there must be a direct connection between the exclusion and the claimed loss. . .” holding that although the exclusion does require that the virus be the cause of the policyholder’s loss, the connection “must be the immediate cause in the chain.” The court found that the insurer failed to show that the exclusion applied since the insured alleged that executive orders were the “sole cause” of the insured’s loss of income and extra expense, as a result of which the virus was not the “immediate cause in the chain” of the insured’s loss.