The United States Court of Appeals for the Eighth Circuit recently became the first appellate court to weigh in on the litany of lawsuits filed by businesses seeking coverage for business interruption resulting from COVID-19-related restrictions. Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 1141 (8th Cir. 2021). In a big win for insurers, the Eighth Circuit affirmed the district court’s grant of the insurer’s Motion to Dismiss, finding the lack of physical damage to the business fatal to the insured’s claim for coverage.
This week has seen a few notable updates in the ongoing dispute regarding insurance coverage for business interruption resulting from COVID-19-related business closures, as federal and state appellate courts finally have had the opportunity to weigh in on these arguments.
On September 29, 2020 in Iowa, United States District Judge Charles R. Wolle granted with prejudice an insurer’s Motion to Dismiss an oral surgery clinic’s declaratory judgment action seeking coverage for business interruption. Oral Surgeons, P.C. v. Cincinnati Ins. Co., 491 F. Supp. 3d 455 (S.D. Iowa 2020). The plaintiff claimed its losses resulted from government orders restricting performance of “non-emergency dental procedures.” The insurer emphasized that purely economic loss is not covered; rather, the policy requires physical loss to trigger coverage.
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.
On October 21, 2020, the Southern District of Alabama issued its first opinion addressing a COVID-19-related claim for lost income under the “business interruption” provision of an “all-risk” policy. Hillcrest Optical, Inc. v. Cont’l Cas. Co., No. 1:20-CV-275-JB-B, 2020 WL 6163142 (S.D. Ala. Oct. 21, 2020). After the plaintiff closed its business in compliance with Governor Ivey’s “stay-at-home” order, it filed a claim with its insurer for lost income, alleging a direct physical loss from the loss of use of its office. The plaintiff’s policy contains a provision covering “direct physical loss of or damage to” the plaintiff’s business. It does not, however, define what constitutes “direct physical loss or damage.” The policy also contains a “Business Income and Extra Expense” endorsement providing coverage for lost income from a necessary suspension of operations during a “period of restoration” caused by a covered direct physical loss to property. This provision covers expenses reasonably and necessarily incurred because of direct physical loss or damage but excludes periods of restoration extended by regulations governing the use of the covered property. It expressly contemplates physical repair to or rebuilding of the property.
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 Georgia Supreme Court granted certiorari in Hughes v. First Acceptance Ins. Co. of Ga., Inc., 343 Ga. App. 693, 808 S.E.2d 103 (2017), to review whether the Court of Appeals erred in reversing the grant of summary judgment to the insurer on the insured’s failure-to-settle claim. The Court also asked the parties to address...
Last week, the Eleventh Circuit in InComm Holdings, Inc. v. Great American Insurance Company affirmed a district court decision holding an insurer is not obligated to reimburse a prepaid debit card processer for a $10.7 million loss.
The Eastern District of Michigan recently entered summary judgment in favor of an insurer in a coverage dispute concerning a computer fraud provision in American Tooling Center, Inc. v. Travelers Cas. & Sur. Co. of America, 2017 WL 3263356.
The Massachusetts Supreme Court recently issued the most comprehensive opinion to date addressing whether an insurer’s duty to defend extends to counterclaims asserted by the insured. The court in Mount Vernon Fire Ins. Co. v. VisionAid,Inc., SJC-12142 (Mass. 2017), held that where an insurance policy provides that the insurer has the “duty to defend any claim” initiated against the insured, the insurer’s duty to defend does not require it to prosecute affirmative counterclaims on behalf of its insured.
The Washington State Supreme Court recently published an opinion that may impact how courts will approach exclusions in certain liability policies. In Xia v. ProBuilders Specialty Insurance Company, 2017 WL 1532219 (Wash. Apr. 27, 2017), a homeowner became ill soon after moving into a new house. It later was determined an improperly installed exhaust vent for the hot water heater discharged carbon monoxide into the basement of the home.
The Eleventh Circuit recently affirmed summary judgment in favor of an insurer on the issue of pre-tender defense costs in EmbroidMe.com, Inc. v. Travelers Property & Casualty Company of America, 845 F.3d 1099 (11th Cir. 2017). Applying Florida law, the court denied the insured’s breach of contract suit for over $400,000 in fees incurred before the insured notified its insurer.
Last week, the District of Oregon became the latest court to rule on the pollution exclusion that appears in almost every general liability policy. The court in Colony Insurance Company v. Victory Construction LLC, 2017 WL 960024 (D. Or. Mar. 9, 2017), concluded Colony had no duty to defend or indemnify its insureds for two bodily injury lawsuits arising from the release of carbon monoxide from a pool heater.
In Pharmacists Mut. Ins. Co. v. Advanced Specialty Pharmacy LLC, No. 1140046, 2016 WL 6819657 (Ala. Nov. 18, 2016), the Alabama Supreme Court reduced an award against a pharmacy’s general liability and umbrella insurer by $3M after finding underlying claims only were subject to the policies’ general aggregate limit, and not also the products/completed work hazard aggregate limit.
In Harleysville Group Ins. v. Heritage Communities, Inc., 2017 WL 105021 the South Carolina Supreme Court considered the impact that vague reservation of rights letters have on an insurer's right to pursue its coverage defenses. The claim arose out of property damage to condominiums originally caused by the insureds' faulty workmanship.
Insurance-appointed counsel should be familiar with the “tripartite” relationship. Those insurance-appointed counsel who defend under a reservation of rights (“ROR”) especially should be aware of the potential conflicts that befall such representation. One commentator aptly described the ROR defense as “deeply and unavoidably vexing.”1 The Supreme Court of Mississippi has recognized the “tripartite” relationship creates problems that would “tax Socrates.”
