New Trial Court Opinions
Judge Denise Casper ruled in Glynn Hospitality Group Inc. v. RSUI Ind. Co., No. 21‑10744 (D. Mass. Nov. 12, 2021) that the owner of various restaurants and entertainment venues in Boston had failed to plead "direct physical loss" to its properties. Citing pre-pandemic opinions of the Appeals Court, as well as other federal district court COVID opinions, the District Court declared that "taken together, these cases indicate that ‘physical loss’ or ‘damage’ under Massachusetts law requires that the cause of loss or damage be a tangible alteration to the property itself." Whereas the insured had argued that this analysis conflated "loss" and "damage," Judge Casper declared that "loss" means the complete destruction of property, whereas "damage" contemplates a lesser injury." For similar reasons, the Court declined to find that there was any "sue and labor" coverage or that coverage arose under the policy's business income or extra expense provisions. Further, Judge Casper declared that any coverage that might otherwise had arisen was negated by operation of the policy's exclusion for loss due to the "release, escape, or application of any pathogenic or poisonous biological or chemical materials." In light of common dictionary definitions, the Court held that this virus is clearly a "pathogen." Further, the Court rejected the insurance argument that terms such as "discharge, dispersal, release, or escape are "terms of art" limited to environmental claims, observing that the First Circuit subpoena in a Jabar, for which this language derives, “was an environmental contamination case, so it was natural for the Court to interpret the provision in an environmental law context."
In the first state appellate opinion to consider the availability of coverage for COVID-19 business interruption losses, the California Court of Appeal has ruled in The Inns by the Sea v. California Mut. Ins. Co., D079036 (Cal. App. Nov. 15, 2021) that a Superior Court did not err in sustaining a property insurer's demurrer without leave to amend, owing to the impossibility of this hotel operator pleading a covered claim for "direct physical loss." The court ruled that what mattered was not the possibility that there had been an outbreak of virus particles inside the insured’s premises but whether the state shut down orders were issued in response to said outbreaks. Under the circumstances, the Court ruled that the insured's business operations were not suspended due to direct physical damage to the property. The Court of Appeals declined to follow cases in which courts have ruled that coverage is triggered "because the physical cause rendered the real property uninhabitable or unsuitable for its intended use, without a structural alteration." Instead, the court found that the insured in this case "cannot reasonably allege that the presence of the COVID-19 virus on its premises is what caused the premises to be uninhabitable or unsuitable for their intended purpose." By way of illustration, the Court observed that even if the insured had thoroughly sterilized its premises to remove any trace of the virus on the property, it would still have incurred a suspension of operations due to the shut down orders, since the orders would have remained in effect throughout the subject California counties. As the court summed up "plaintiff seeks to recover from economic losses caused by something physical – not physical losses." Moreover, the Court found that it was no allegation of direct physical loss of property citing the Couch treatise for the general proposition that "real loss of use of physical property degenerate business income, without any other physical impact on the property, does not give rise to coverage for direct physical loss." The court also pointed to the period of restoration language as confirming the requirement that there be damage to the property of a physical nature that could be physically fixed, or that is incapable of being physically fixed because it is so heavily destroyed. By contrast, the policy is not intended to provide coverage for mere loss of use of the property. Finally, the Court refused to find that the absence of a virus exclusion in this policy implicitly suggested that it was intended to cover loss due to viruses. Rather, the court ruled that the mere absence of exclusions, standing alone, does not create coverage where it otherwise does not exist under the express terms of the policy.
An Arkansas summer camp has sued Arch Insurance in federal court in Texas, seeking financial and reputational damages in Ozark Interests, Inc. d/b/a Camp Ozark v. Arch Ins. Co., No. 21-3778 (S.D. Tex.) for the insurer’s voiding of 5000 insurance policies issued to campers.
OTHER CASES OF CONSEQUENCE
NINTH CIRCUIT Late Notice/Prejudice (MT)
The Ninth Circuit has issued a brief opinion in Baadsgaard v. Safeco Insurance Company of Illinois, No. 20-36104 (9th Cir. Nov. 10, 2021), declaring that a Montana District Court did not err in holding that Safeco was prejudiced by its insureds' failure to give it timely notice of a dog bite incident due to the fact that Safeco was deprived of the opportunity to defend its insured and now faces an exposure to potential liability greater than its policy limits. Further, the court declared that under Montana law, Safeco could not have breached its duty to defend its insured because it was never given notice of or given an opportunity to defend the underlying complaint.
ELEVENTH CIRCUIT Additional Insured/Exclusions (FL)
The Eleventh Circuit has ruled in Endurance American Specialty Ins. Co. v. L. Pellinen Construction Inc., No. 21-10256 (11th Cir. Nov. 12, 2021)(unpublished) that a Florida district court did not err in ruling that Endurance American had an obligation to provide coverage to an additional insured for personal injury claims arising out of a construction site. In finding coverage, the court refused to give effect to policy exclusions for workers' compensation and "employers liability” claims as the injured individual was not actually employed by any of these parties nor was it a "statutory employee" so as to be subject to the exclusions. The court declared that "a property owner does not take on the role of a 'contractor' and statutory employer under Florida law really by acting as its own general contractor, by hiring a subcontractor or by participating in a construction project on its property." Finally, the court refused to give effect to a "multi-unit construction project" endorsement exclusion which eliminated coverage for losses involving housing developments consisting of ten or more individual units. While agreeing that the subdivision in question included dozens of homes, the court found that they were not constructed on a "single contiguous parcel of land" as the endorsement required.
WEST VIRGINIA Jurisdiction/Anti-Suit Injunctions
The West Virginia Supreme Court has ruled that a trial judge did not exceed his jurisdiction in issuing an order enjoining liability insurers from filing suits in other states seeking a declaration that their policies did not cover the insured's opioid liabilities so long as the relief was "narrowly tailored to protect the Court's authority while respecting the sister State Court." The court ruled in 4, No. 21‑0036 (W. Va. Nov. 15, 2021) that any such injunction must be narrowly drafted, must The Court held that trial courts can enjoin parties from filing out-of-state actions that are substantially similar to the pending case, taking into account the identity of the parties and issues and whether the West Virginia case can resolve all the claims at issue. Further, given the impact of the opioid epidemic in West Virginia, the Supreme Court found that its courts have a "compelling interest to determining whether the policies at issue … provide coverage for the underlying claims brought by West Virginia entities, without competing rulings from a foreign court." The case was remanded to the Circuit Court, however, owing to the overbreadth of the anti-injunction Order, which prohibited all parties to the West Virginia action from instituting or prosecuting an illegal proceeding concerning ABDC's coverage, whereas ABDC's Complaint was far more limited in scope and only sought a declaratory judgment concerning 16 insurance policies issued by five insurers.
OTHER DEVELOPMENTS OF NOTE
Inside the Insurance Industry
Swiss Re predicted this week that global insurance premiums will grow by over 3% this year and will exceed $7 trillion for the first time by mid-2022.
Business Insurance reports that the growth of third party litigation funding has exploded since 2019.