Aug 20 2021

Insurance Law 8/20/2021


Covid By The Numbers

According to the UPenn Covid Coverage Litigation Tracker, there have now been nearly 2000 COVID insurance coverage cases filed around the United States. Of that number, 568 cases have been decided, with insurers winning on motions to dismiss in 472 cases and losing their motions in 53. To date, policyholders have only obtained judgment in nine cases. Approximately half (232) of the dismissed cases are on appeal. 180 appeals are pending in the federal circuits, with the highest number filed in the Ninth Circuit (61) followed by the Third Circuit (31). Only one appeal has been decided to date.

New Trial Court Decisions

A federal judge in Norfolk, Virginia has certified the first class of policyholders seeking recovery for COVID‑19 business interruption losses. In Elegant Massage LLC v. State Farm Mutual Automobile, Fire & Cas. Ins. Co., No. 20-265 (E.D. Va. Aug. 19, 2021), Judge Jackson rejected the claimant's argument that they should be entitled to bring a class on behalf of over 100,000 State Farm policyholders, observing that most of these individuals have no standing, since there was no evidence that they had presided or had been denied a claim for COVID‑19 related business interruption losses. Nonetheless, the Court ruled that the remaining 119 business that were identified as having been denied coverage was sufficient to satisfy Rule 23's numerosity requirement. Further, the Court ruled that in this case the common questions of law in fact predominate over new questions affecting only individual members as per Rule 23(b)(3).

Judge Hernandez ruled in Dakota Ventures LLC v. Oregon Mutual Ins. Co., No. 20-630 (D. Ore. Aug. 11, 2021) that the loss of use of the insured's facilities or the possibility that there was a “statistical certainty” that the virus was present in these restaurants failed to set forth a plausible claim for "direct physical loss."

Judge Hillman has ruled in Z Business Properties LLC v. Twin City Fire Ins. Co. No. 20-10075 (D. N.J. 9/20/21) that an insured's claims for business interruption coverage must fail due to an exclusion for "loss or damage caused directly or indirectly by the … present, growth, proliferation, spread or any activity of fungi, wet rot, dry rot, bacteria or virus." In light of rulings from around the country, including several New Jersey cases upholding this exclusion, the court held that the virus was a cause of the insured's loss. The court also rejected the insured's argument that the exclusion in question did not apply because it does not explicitly refer to "a pandemic or damages related to a pandemic."

Judge Badalamenti has ruled in Scherder v. Aspen American Ins. Co., No. 20-697 (M.D. Fla. Aug. 11, 2021) that a dentist’s suit for business interruption losses must fail because it did not allege that the insured's lost income was due to an actual, demonstrable, physical alteration of property. The Court further rejected the insured's proposal to amend its pleadings to allege that the presence of coronavirus particles on the surface of property had necessarily impaired its value, usefulness, and normal function. The court ruled that the policy in question does not cover the mere denial of access to a property without direct physical damage to its structure.

Judge Hatter has issued a brief ruling in The Los Angeles Lakers Inc. v. Federal Ins. Co.. No. 21-2281 (C.D. Cal. Aug. 11, 2021) dismissing the case because there was no plausible basis for concluding that the presence of virus particles on the insured's property had caused "direct physical loss or damage" and because the insured had not presented facts to support its conclusory assertion that Magic Johnson was a better player than Larry Bird.

Judge Kocoras has reconsidered his earlier denial of an insurer's motion to dismiss and ruled in Legacy Sports Barbershop LLC. v. Continental Casualty Company, No. 20-40149 (N.D. Ill. Aug. 13, 2021) that the policy's requirement of "direct physical loss of or damage" requires either a permanent disposition of the property due to a physical change (‘loss’) or a physical injury to the property requiring repair ‘damage.’)" The court rejected the insured's argument that alterations to their property due to the installation of plexiglass and a new outdoor patio to accommodate pandemic conditions satisfied these requirements.

Judge Moreno has ruled in Bourgier v. Hartford Casualty Ins. Co., No. 21-21053 (S.D. Fla. Aug. 12, 2021) that the insured had failed to plead a claim for a direct physical loss, and that there was no civil authority coverage in light of the insured's failure to allege that the insured's actions to its property had been specifically prohibited by order of a civil authority. Further, the court ruled that the insured's claims were subject to an exclusion for "fungi, wet rot, dry rot, bacteria and virus,” rejecting the insured’s argument that its “time element” language might actually provide coverage..

Appellate Activity

The Third Circuit has ruled that federal district courts in New Jersey and Pennsylvania erred in failing to exercise jurisdiction over COVID‑19 business interruption disputes. While rejecting the argument of various insurers in these consolidated cases, that these were actually contact cases masquerading as claims for declaratory relief the Court ruled In Dianoi's Eatery LLC v. Motorist Mutual Ins. Co., et al. No. 20-2954 (3rd. Cir. Aug. 18, 2021) that the courts below had misinterpreted the principles governing their exercise of jurisdiction in such cases. In particular, the court ruled that the absence of clear state Supreme Court authority was no basis for refusing to exercise jurisdiction, especially where intermediate appellate authority existed and the rules for contract interpretation were not in dispute. The court also declared that these cases did not present important public policy issues merely because they involve policy forms that had been approved by state insurance regulators. Writing in dissent, Judge Roth asserted that the underlying rulings should have been affirmed as they present novel and important public policy issues that uniquely affect the states in question.

Tort Claims

Several employees of the Veteran’s Home in Holyoke, Massachusetts where dozens of patients died in the early week of the COVID 19 pandemic have filed a putative class action against past and present officers of the facility, alleging that they were forced to work in “inhumane conditions.”


FIFTH CIRCUIT           Workers Compensation/Employee/Anti-Indemnity (TX)

The Fifth Circuit has asked the Texas Supreme Court to clarify whether the employee of a general contractor who is injured on a job site should also be considered to be a subcontractor employee for purposes of the Texas Anti-Indemnity Act, asking in Maxim Crane Works v. Zurich Ins. Co., No. 19-20489 (5th Cir. Aug. 30, 2021) whether the “employee exception to the TAIA, Insurance Code § 151.103, allows additional insured coverage when an injured worker brings a personal injury claim against the additional insured (indemnitee), and the worker and the indemnitee are deemed “co-employees” of the indemnitor for purposes of the TWCA.

FIFTH CIRCUIT           Standing/Third Parties/D&O/Inter-Related Acts (TX)

The Fifth Circuit has held that a trial court erred in ruling that a non-adversarial default judgment was insufficient to give standing to a group of ex-students who had sued their college’s D&O insurer seeking coverage for allegations that the school had breached its promises concerning their education. Notwithstanding the fact that Texas does not generally allow “direct actions” against liability insurers, the court held in Turner v. Cincinnati Ins. Co., No. 20-50548 (5th Cir. Aug. 13, 2021) that a non-adversarial default judgment could support standing unless the “no action” clause in the policy required an actual trial. Nevertheless, the Fifth Circuit sustained the lower court’s entry of summary judgment on the separate ground that the students’ claims were inter-related with similar claims that had first been made prior to the issuance of Cincinnati’s D&O policy and were therefore excluded from coverage.

ALABAMA           Auto/Burden of Proof

The Alabama Supreme Court has ruled that a trial court erred in granting summary judgment to an auto insurer for a serious auto accident caused by an individual who was unlicensed at the time and was not listed as an insured operator on the policy, holding in James v. Assurance American Ins. Co., 1200462 (Ala. Aug. 20, 2021) that Assurance American had not sustained its burden of proof inasmuch as the unofficial police accident reports that it relied on were inadmissible hearsay.

ILLINOIS           Declaratory Relief/Stays

The Appellate Court has denied an appeal of a court order staying insurance coverage proceedings pending the outcome of the underlying tort case. In Westfield Ins. Co. v. Board of Education of the City of Chicago, 2021 IL App (1st) 210531 (Ill. App. Ct. Aug. 20, 2021), the First District ruled that the trial court did not abuse its discretion in staying the coverage case since the outcome of the tort action would define the issue of whether Westfield owed “additional insured” obligations.

NEW HAMPSHIRE           Subcontractor’s Employee Exclusion

Judge LaPlante has ruled that a CGL insurer has no obligation to provide insure a property owner against wrongful death suit by a subcontractor’s employee in light of proprietary exclusions in its policy. In Nautilus Ins. Co. v. Ferreira, No. 21-1053 (D.N.H. Aug. 19, 2021) that any duty to defend was eliminated by reason of the L205 endorsement for losses arising out of injury to the employees of contractors or subcontractors. The court rejected the loss claimant’s argument that the insured was merely a developer and that the injured individuals work was not in support of the insured’s business. The court also held that these claims would have been excluded pursuant to the L282 form as arising out of work being performed at the time by a subcontractor on the site. MM's Michael Aylward and Linda Smith represent Nautilus.


Back to Newsletters