News & Insights

Florida District Court Finds Virus Exclusion Arguably Ambiguous As Applied To Covid19 Business Losses

The Middle District Court of Florida in Urogynecology Specialist of Florida, LLC, v. Sentinel Insurance Company, LTD., 2020 WL 5939172 (M.D. Fla. 2020) broke from many other cases in Florida and elsewhere in denying an insurer’s motion to dismiss a COVID-19 business loss claim on the grounds of a virus exclusion in the policy.  The court held that the virus exclusion included in an all-risk insurance policy was “arguably ambiguous” as applied to the forced shutdown, which made a coverage determination inappropriate on a motion to dismiss.  The policy, which provided coverage for “physical loss of or physical damage to Covered Property” also covered loss of business income due to necessary suspension of operations.  The policy’s coverage was extended to pay for losses to the business’s accounts receivable.

The policy includes a provision which excludes loss directly or indirectly caused by the “[p]resence, growth, proliferation, spread or any activity of ‘fungi,’ wet rot, dry rot, bacteria or virus.”  This exclusion applies regardless of any other cause or event that contributes concurrently to the loss.  The plaintiff argued that this provision was ambiguous (and therefore must be construed in favor of coverage).  The court agreed that the provision was arguably ambiguous for multiple reasons.

One source of potential ambiguity included the fact that the section that includes the virus exclusion stated that it modified coverage sections of the policy which were neither found within the policy nor provided to the court.  Another source of potential ambiguity was found in the grouping of the virus exclusion, which excluded loss or damage caused (directly or indirectly) by the presence, growth, spread, or any activity of “fungi, wet rot, dry rot, bacteria or virus.”  The court found that excluding coverage under COVID-19 “does not logically align” with the inclusion of the virus exclusion in the same group as “other pollutants.”  Without explanation, the court appears to apply the doctrine of noscitur a sociis to fundamentally change the definition of “virus.” Despite the fact that “virus” was specifically and explicitly excluded, the term’s inclusion in a group of what the court considered dissimilar pollutants led to the conclusion that the policy may not have “anticipated and intended to deny coverage for these kinds of business losses.”

Although the insurer cited and the court noted multiple cases in which similar virus or pollution exclusions have excluded coverage, the court opined with minimal explanation that “none of the cases dealt with the unique circumstances of the effect COVID-19 has had on our society – a distinction this Court considers significant.”  The court held that the plaintiff had stated a plausible claim of coverage sufficient to deny the insurer’s motion to dismiss.

This case was handed down less than two months ago. However, three subsequent district court decisions have distinguished this holding and granted the insurers’ motions to dismiss.  One such case (Founder Institute Incorporated v. Hartford Fire Insurance Company, et. al, 2020 WL 6268539 (N.D. Cal. 2020)) in the District Court of the Northern District of California involved the same insurer, Sentinel, as well as the same virus exclusion: “loss or damage caused directly or indirectly by… [p]resence, growth, proliferation, spread or any activity of “fungi”, wet rot, dry rot, bacteria or virus.”  The Northern District of California specifically criticized the Middle District of Florida’s decision, noting that plaintiff “cites a recent ruling denying a motion to dismiss based on the same virus exclusion in Urogynecology Specialist of Florida LLC v. Sentinel Insurance Company, but the district court in that case did not cite anything—from the complaint or elsewhere—that would support a conclusion that a business shutdown due to a pandemic falls outside the scope of the virus exclusion.”  Noting that the Plaintiff’s “theory of coverage appears frivolous[,]” the Northern District of California dismissed all of the plaintiff’s claims.  Another decision in the Southern District of Florida (Nahmad v. Hartford Casualty Insurance Company, 2020 WL 6392841 (S.D. Fla. Nov. 2, 2020)) granted the insurer’s Motion to Dismiss while noting the contrary holding of the Middle District in a footnote.

The ruling in Urogynecology Specialist of Florida LLC was followed by another recent decision in North Carolina North State Deli, LLC et al. v. Cincinnati Ins. Co.) which sided with the insureds in finding that the policy definition of “business loss” included loss of income as the result of the COVID-19 shutdown.  These decisions notwithstanding, courts throughout the United States have overwhelmingly sided with insurers in finding that virus exclusions unambiguously show that the parties did not intend for the bargain to include coverage for viruses.