The Eleventh Circuit continues to dismiss suits brought by business owners seeking coverage for losses caused by COVID-19. But policyholders in other jurisdictions have achieved some notable wins so far in 2021. While “success” often means a policyholder merely survived dismissal on the pleadings, some courts have ruled in favor of policyholders in later stages of litigation.

It appears Ohio currently may be the policyholder’s friendliest jurisdiction. In 2021, at least four Ohio state courts denied insurer’s motions to dismiss, allowing policyholders to progress beyond pleadings. Moreover, on January 19, 2021, the Northern District of Ohio even granted a policyholder’s motion for summary judgment on coverage. In Henderson Road Restaurant Systems, Inc. v. Zurich American Insurance Company, No. 1:20-cv-01239-DAP (N.D. Ohio Jan. 19, 2021), Zurich filed a motion for summary judgment, arguing there was no direct physical loss to trigger coverage for business interruption. Even if there was a direct physical loss, the microorganism exclusion applied because the loss was due to a microorganism: COVID-19. Further, Zurich argued the Civil Authority provision does not afford coverage because states’ orders did not “prohibit access” to the policyholders’ businesses; they could still offer takeout and delivery services. Zurich also requested summary judgment on bad faith. Later, Zurich filed supplemental authority in support of its motion—a December 21, 2020 court order granting an insurer’s motion to dismiss many of the same arguments Zurich asserts. See Santo’s Italian Café LLC v. Acuity Ins. Co., No. 1:20-cv-00192 (N.D. Ohio Dec. 21, 2020).

In opposition, plaintiffs emphasized Zurich could have included more specific policy language to indicate “direct physical loss of or damage to property” required physical alteration. Plaintiffs highlighted case law from North Carolina and Louisiana which equated the inability to possess the premises with direct physical loss. Plaintiffs also argued the provision in their policy covering “direct physical loss of or damage to property” is more expansive than in the cases Zurich cited. Plaintiffs argued against application of the microorganism exclusion, claiming that state orders were issued in response to but were not caused by COVID-19. Plaintiffs eventually filed a cross-motion for summary judgment.

United States District Judge Dan Aaron Polster first addressed ambiguity in the policy language. Judge Polster agreed with plaintiffs that to avoid superfluity, there must be a distinction between “direct physical loss of or damage to” real property. He found the policy language susceptible to plaintiffs’ interpretation that a loss of property happened when the policyholders could no longer use the properties for their intended purpose as dine-in restaurants. Judge Polster emphasized Zurich offered no evidence indicating the restaurants realistically could have transitioned from almost exclusively dine-in service to takeout and delivery services. Judge Polster also was unpersuaded by Zurich’s case illustrations because those cases involved policies without the broader “loss of” language. And reliance on case law could not change the fact that the policy did not define the term “loss of.” Accepting Zurich’s interpretation that the undefined term requires a covered loss of property to be permanent would result in the court resolving ambiguity in favor of the insurer—“something Ohio law does not permit.”

Judge Polster relied on further ambiguities to determine plaintiffs had demonstrated suspension of business operations resulting from direct physical loss of or damage to the premises such that coverage was triggered. The judge rejected application of the microorganism exclusion to the “unprecedented government closures that occurred in 2020,” particularly since parties stipulated there was no confirmed presence of COVID-19 on the premises. Again, the court emphasized that the policy did not unambiguously provide coverage. Ultimately, the court granted summary judgment on coverage issues “[b]ecause the Policy provides coverage and none of the exclusions apply.” It, however, granted the insurer’s motion for summary judgment on bad faith because Zurich had a reasonable basis for disputing coverage. The court certified its coverage ruling for interlocutory appeal.

Although insurers are still mostly successful in avoiding coverage for COVID-related business closures under business interruption policy provisions, cases like Henderson Road afford policyholders an avenue for coverage based on policy ambiguity. Insurers are wise to heed these cases and clarify policy terms accordingly.