There was a brief but confusing statement in the opinion in Urogynecology Specialist of Fla. LLC v. Sentinel Ins. Co., No. 6:20-cv-1174, 2020 WL 5939172, at *4 (M.D. Fla. Sept. 24, 2020). The particular holding stated there was that putting the virus exclusion in a pollution exclusion "'does not logically align'" with the other pollutants.
This made little sense in the public context of that opinion. For one thing, the opinion in Urogynecology never referred to the pollution exclusion again and for another, the Court never expressly stated that the underwriters of that policy wrote a virus into a pollution exclusion.
However, as an article posted here on December 17, 2020 made clear, research on PACER into the policy involved showed that the underwriters of that policy placed the virus exclusion with the policy's pollution exclusion. Whether that "'grouping of the virus exclusion with other pollutants'" was intended or inadvertent, that is one reason that the policy was made ambiguous and so was construed in favor of the insured which claimed covered losses as a result of COVID-19. See THE PANDEMIC HAS REVEALED MANY THINGS. VIRUS EXCLUSION INTERPRETATION DISPLAYED, Dec. 17, 2020.
Now a Court has followed Urogynecology in holding that COVID-19 does not belong in a pollution exclusion, at least if the carrier which issued the policy wants to deny insurance coverage under an all-risks policy.
However, that was the second issue confronting the Court in JGB Vegas Retail Lessee, LLC v. Starr Surplus Lines Ins. Co., No. A-20-816628-B, 2020 WL 7190023 (Nev. Dist. Ct., Clark County, Nov. 30, 2020 Trial Order). The first issue was whether the policyholder-plaintiff, which operated a mall until the mall was shut down by government orders because of the coronavirus, alleged direct physical loss or damage to property from COVID-19.
The Court's answer in this case to this first question was as meaningful to coverage analysis as its answer to the second question, the one involving the exclusion of damage caused by a virus. In answering the first question, whether the policyholder sufficiently alleged direct physical loss or damage to property from COVID-19, the Court accepted the plaintiff's allegations that the virus was physically present at the insured mall and that COVID-19's physical presence caused damage to the property.
As the Court put it, "The Court finds that JGB's Complaint sufficiently alleges losses stemming from the direct physical loss and/or damage to property from COVID-19 to trigger Starr's obligations" under the policy. JGB, 2020 WL 7190023, at * 2.
The Nevada State court's treatment of "direct physical loss or damage" in this case is likely to be followed by judges in other courts in other States across the country. For this Court in this case, to say again, it is enough for a plaintiff claiming coverage under an all risks policy to trigger coverage, to allege "the physical presence and known facts about the coronavirus[.]" "Presence of COVID-19" = "direct physical loss or damage in a case like this," to put the Court's analysis here into an equation likely to be applied in other cases.
Returning to the second question in this case, the one asking whether and how a "virus" is a "pollutant," it is important to read the policy, as in any case. The underwriters who wrote the policy at issue in this case did not write a separate virus exclusion, as the underwriters who wrote the Urogynecology policy may have tried to do.
Rather, the underwriters who wrote the JGB policy expressly inserted the word, "virus," into a pre-existing policy definition of "POLLUTANT or CONTAMINANTS." The JGB Court reproduced the policy language verbatim and in context, see JGB, 2020 WL 7190023, at *3. Expressly writing a virus into a policy definition of pollutants and contaminants did not work either.
Working from the premise of policy interpretation that a carrier bears the burden of proving that one of the exclusions in its policy applies to the case at hand, the Court held that the carrier did not meet that burden in this case. "Starr has not shown that it is unreasonable to interpret the Pollution and Contamination exclusion to apply only to instances of traditional and industrial pollution and contamination that is not at issue here, where JGB's losses are alleged to be the result of a naturally-occurring, communicable disease." JGB, 2020 WL 7190023, at *3.
The policyholder also alleged claims for violations of Nevada's Unfair Claims Practices Act and for breach of the covenant of good faith and fair dealing. Nevada follows a notice pleading standard to determine motions to dismiss. Once the Court determined that the policyholder sufficiently alleged a claim to insurance coverage in this case, the Court also denied the carrier's motion to dismiss the alleged claims for statutory and common law "insurer bad faith." See JGB, 2020 WL 7190023, at *4. This holding aligns with the majority of United States decisions on this issue, namely, that bad faith depends on coverage.
To say again, as was said here before: The pandemic has revealed many things. Who knew that interpreting insurance policies would be among the things revealed?
More of these revelations will be explored in a forthcoming ABA Tort Trial & Insurance Practice Law Journal (Spring 2021) article by Dennis J. Wall titled, "Remedies in Business Litigation: Update on Business Income Losses in the Coronavirus Pandemic."
Please read the disclaimer. ©2020 Dennis J. Wall. All rights reserved.
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