This is a preview of the Spring 2022 Supplement edition of Catastrophe Claims: Insurance Coverage for Natural and Man-Made Disasters, § 7:20, Virus Exclusions and the Coronavirus Pandemic of Covid-19:
A couple of cases to consider before concluding this Section involve coverage claims under insurance policies arising from damages allegedly caused by the Covid-19 virus, but the policies did not contain a Virus Exclusion. The cases merit consideration in this Section because the decisions illustrate the importance of Courts, counsel, and clients refusing to follow a "majority view" simply because they are told that it is a majority view, or that binding precedent has already decided the issues, without looking at the actual insurance policy involved in their cases.
In K.C. Hopps, Ltd. v. Cincinnati Insurance Co.,[1] the plaintiff claiming coverage "owns and operates ... bars, restaurants, catering services, and/or event spaces in the Kansa City metropolitan area[.]"[2] The "all-risk commercial property insurance policy" that the plaintiff purchased from the defendant carrier required "direct 'loss' to Covered Property" at the covered premises "'caused by or resulting from any Covered Cause of Loss.'"[3] As in the above cases considered in this Section, "loss" was a key to coverage under the policy. "Loss" was only defined in the policy by reference to a pair of terms that were not themselves defined: "'accidental physical loss or accidental physical damage'," yet a "'loss' is a prerequisite" to all of the coverages sought in the lawsuit.[4]
The K.C. Hopps Court looked behind the decisions in other cases, including an interpretation in a Covid-19 case by its governing Eighth Circuit Court of Appeals of an identically worded insurance policy issued by the same carrier, Cincinnati Insurance Company.[5] Instead of bowing to a platitude, namely, a party's invocation of binding Circuit precedent to determine the outcome in the present case, the K.C. Hopps Court read the Circuit Court's precedential decision in context:
However, the Eighth Circuit did not determine that SARS-CoV-2 [Covid-19] can never cause “physical loss” or “physical damage.” Instead, the Eighth Circuit held that the “policy here clearly requires direct ‘physical loss’ or ‘physical damage’ to trigger business interruption and extra expense coverage. Accordingly, there must be some physicality to the loss or damage of property—e.g., a physical alteration, physical contamination, or physical destruction.” [The Court was quoting from Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 1141, 1144 (6th Cir. 2021)] (citations omitted). In turn, the Court agrees with Plaintiff that Oral Surgeons supports its position that “proof of physical contamination is sufficient to meet the Policy's requirement for physical loss or damage.”[6]
The Eighth Circuit's decision in Oral Surgeons came on the carrier's motion to dismiss. The District Court's decision in K.C. Hopps was based on the record on competing motions for summary judgment.
On that record, "unlike the plaintiff in Oral Surgeons, Plaintiff submits evidence supporting the inference that SARS-CoV-2 [Covid-19] is physical, contaminated its premises, and made Plaintiff's property unsafe."[7]
Simply put, said the K.C. Hopps Court, "[t]his theory of 'loss' is recoverable under the plain language of the Policy."[8] The result was a holding that the Plaintiff's interpretation of the policy at bar prevailed:
Accordingly, the Court finds that “physical loss” or “physical damage” under the Policy not only includes actual, tangible physical alteration of the property, but also includes physical contamination which renders the property unsafe.[9]
This was not the end of the story in the K.C. Hopps case, however, neither for the defendant carrier nor for the plaintiff policyholder. The plaintiff would still have to prove what the record did not yet show, i.e., material facts were in genuine dispute as to whether the plaintiff had proven that the virus was in fact on its premises, that the coronavirus "actually caused a physical loss or physical damage to Plaintiff's premises," and that it had caused some or all of the damages complained of.[10]
Interested in how the story of Catastrophe Claims is playing out so far in the coronavirus pandemic of Covid-19? Check out the Two-Thousand page book Catastrophe Claims: Insurance Coverage for Natural and Man-Made Disasters (Thomson Reuters, November 2021 edition available now, May 2022 edition forthcoming).
Please read the disclaimer. This blog article ©2022 Dennis J. Wall. All rights reserved.
[1] K.C. Hopps, Ltd. v. Cincinnati Ins. Co., ___ F. Supp. 3d ___, No. 20-cv-00437-SRB, 2021 WL 4302834 (W.D. Mo. Sept. 21, 2021).
[2] K.C. Hopps, 2021 WL 4302834, at *1.
[3] K.C. Hopps, 2021 WL 4302834, at *1.
[4] K.C. Hopps, 2021 WL 4302834, at *1.
[5] The Eighth Circuit decision came in the case of Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 1141 (8th Cir. 2021). The Oral Surgeons decision is cited in note 4 in this Section, supra.
[6] K.C. Hopps, Ltd. v. Cincinnati Ins. Co., ___ F. Supp. 3d ___, No. 20-cv-00437-SRB, 2021 WL 4302834, at *6 (W.D. Mo. Sept. 21, 2021).
[7] K.C. Hopps, 2021 WL 4302834, at *6.
[8] K.C. Hopps, 2021 WL 4302834, at *6.
[9] K.C. Hopps, 2021 WL 4302834, at *8.
[10] K.C. Hopps, 2021 WL 4302834, at *14.