(Louis Sinco / Los Angeles Times)
The good news is in the title of this article. Happy Holidays to All, and to All a Happy New Year every day throughout the year to come in 2021!
This article was originally published on December 23rd on Claims and Issues Blog. It is so good that I had to do it again, here! Merry Christmas and Happy Holidays!
(LexisNexis)
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.
(LexisNexis) In Elegant Massage, LLC v. State Farm Mut. Auto. Ins. Co., No. 2:20-cv-265, 2020 WL 7249624 (E.D. Va. December 9, 2020), a Federal District Court denied State Farm's motion to dismiss a Business Interruption claim based on COVID-19 despite a Virus Exclusion.
The plaintiff-policyholder is a spa. It bought an all-risk commercial property insurance policy from State Farm. It made claims under that policy for Business Interruption losses both for the time when it voluntarily closed its doors for business, and through the time that followed Executive Orders which required it to close. State Farm denied the claims based in part on the policy's Virus Exclusion.
The spa sued for coverage and alleged bad-faith damages. State Farm filed its motion to dismiss. The District Court's analysis was simple and basic analysis of coverage under an all-risk insurance policy.
The policyholder making a claim under an all-risk policy first has to establish coverage. Here, that meant establishing that the claimed losses were caused by "accidental direct physical loss" to the property.
The Federal Court found that Virginia Courts have applied a "spectrum of accepted interpretations" of "direct physical loss" in the case law, and the Federal Court applied the interpretation most favorable to coverage in this case since the carrier had the opportunity to limit and define the phrase in the policy, but did not.
"Based on the case law, the Court finds that it is plausible that a fortuitous 'direct physical loss' could mean that the property is uninhabitable, inaccessible, or dangerous to use because of intangible, or non-structural, sources." Elegant, 2020 WL 7249624, at *10.
Coverage having been established -- or more accurately in the context of this case, a plausible claim to coverage having been established -- the next step of the analysis is whether coverage under the all-risks policy is excluded. That brings us, as it brought the Court, to the Virus Exclusion at issue here.
The burden is on the all-risks carrier to show the applicability of an Exclusion. In this case, the all-risks carrier did not meet its burden. This was so even in the face of a more or less standard Virus Exclusion which a vast majority of Courts across the country have interpreted to exclude Business Interruption claims arising from COVID-19.
But not in this case. The Court in this case was not intimidated by reports of a majority view of Virus Exclusions.
The Court's approach is a lesson in coverage interpretation and not just for interpretation of all-risks policies. Here, the Court thought "outside the box," and counsel for policyholders and counsel for insurance companies alike would do well to take notice.
The facts alleged in the policyholder's complaint did not depend on a virus. The policyholder did not allege either that COVID-19 was present at the spa or that COVID-19 was the direct cause of physical loss to Covered Property. See Elegant, 2020 WL 7249624, at *13. In basic and simple terms, the plaintiff's claim to coverage was based on alleged losses due to a threat risk, and not a virus.
Next, the Court turned its attention to the language in the all-risks policy at issue. Interpretation of an insurance policy is a legal issue. The Court held that, as a matter of law, the Virus Exclusion at bar "applies where a virus has spread throughout the property." Elegant, 2020 WL 7249624, at *12. Therefore the Virus Exclusion at bar does not apply to the facts alleged in this particular case. To put it another way, the all-risks carrier failed to meet its burden to show that the Virus Exclusion applies to the spa's Business Interruption claims. Elegant, 2020 WL 7249624, at *13.
Coverage was plausibly alleged, sufficiently enough to withstand the carrier's motion to dismiss based on its Virus Exclusion. In accordance with the majority of jurisdictions in the United States, the Court also denied the carrier's motion to dismiss the policyholder's bad-faith claim, which the carrier had urged should be dismissed because there was no coverage. However, as noted, the Court held to the contrary at this stage of the case. Therefore, coverage having been plausibly alleged, the carrier's argument for dismissal of the bad-faith claim was politely but firmly rejected. Elegant, 2020 WL 7249624, at *14.
To say again what was said here as recently as December 17, 2020, "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, Remedies in Business Litigation: Update on Business Income Losses in the Coronavirus Pandemic.
Please read the disclaimer. ©2020 Dennis J. Wall. All rights reserved.
Like the people of the United States, not every virus exclusion looks alike.
(Image courtesy New York Public Library Digital Collections)
Read your clients' policies before you decide whether and how to argue for or against insurance coverage for the pandemic. See, e.g., Covid Coverage Litigation Tracker Blog News posted October 27, 2020,
"Not All Virus Exclusions Are Equal."
(Brennan Linsley /Associated Press)
On a related note, read the cases to find the law, not just the headnotes.
Please read the disclaimer. ©2020 Dennis J. Wall. All rights reserved.