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.
