St. Petersburg, Florida-based steakhouse Rococo Steak LLC told the circuit court in its Tuesday brief that it has suffered direct physical loss or damage to property caused by the coronavirus and resulting civil closure orders. And Aspen Specialty Insurance Co. has wrongly refused to pay for multiple coverages in the eatery’s “all risk” commercial insurance policy that should apply to those losses, according to Rococo.

Rococo urged the circuit court to reverse the lower court’s Jan. 27 dismissal with prejudice, saying U.S. District Judge Virginia M. Hernandez Covington wrongly tossed the suit based on Aspen’s motion to dismiss for failure to state a claim. The insurer impermissibly asked the judge to decide a factual dispute over whether COVID-19 causes structural alterations to property and ambient air, Rococo argued.

“The district court’s real complaint is not that Rococo Steak has failed to plead structural alteration, but rather that it did not think COVID-19 caused such structural alteration,” Rococo said in its brief. “But, under the Federal Rules of Civil Procedure, the district court is constrained from deciding pled and disputed factual issues on a motion for summary judgment, let alone a motion to dismiss. Ultimately under our legal system, those issues are decided by a jury.”

Rococo took issue with Judge Covington’s citation of an Aug. 18 circuit decision in Mama Jo’s Inc. d/b/a Berries v. Sparta Insurance Co., which affirmed that the insurer did not have to cover a Miami restaurant’s lost income and extra cleaning costs due to dust from nearby roadwork, agreeing with a Florida federal judge that the eatery’s claimed losses did not result from covered “direct physical loss of or damage to” its property.

Judge Covington’s order said Rococo failed to squarely address the binding Mama Jo’s precedent that alleged damage must be actual and physical.

“Like the restaurant in Mama Jo’s, Rococo does not allege that COVID-19 required removal or replacement of any property or items in the insured restaurant,” the judge wrote. “Rather, like the coating of dust and debris in Mama Jo’s, the surfaces allegedly contaminated by COVID-19 seem to only require cleaning to fix.”

But Rococo told the circuit court that Judge Covington and Aspen’s reliance on Mama Jo’s is misplaced when they take the position that there is no direct physical loss to a surface that can be cleaned. And rather than test the sufficiency of the complaint, the district court erred in deciding the case on the merits at the motion to dismiss stage, inappropriately making factual determinations and ignoring Rococo’s claim of losing its ability to function, according to the steakhouse.

“Not only was Mama Jo’s decided in the lower court on a motion for summary judgment … after the parties had the opportunity to conduct discovery and fully develop the factual record supporting their pleadings, but that court was not faced with a contention that loss of functionality was sufficient to constitute direct physical loss or damage,” Rococo argued.

The steakhouse’s initial complaint was lodged on Oct. 23 and alleged the presence of COVID-19, along with loss of functional space, and structural alteration of the restaurant’s surfaces and ambient air caused by the virus. The presence of the virus caused the property to be physically uninhabitable by customers and also caused its function “to be nearly eliminated or destroyed,” according to the brief.

Rococo claimed its October 2019 through October 2020 policy contained coverage for business interruption, extra expenses and civil authority closure orders. The policy contained no virus exclusion and applied to direct physical loss of or damage to covered property, the steakhouse said.

As of now, no Florida appellate court has addressed “direct physical loss of or damage to” property in the context of a coronavirus-related business interruption insurance loss, according to Rococo.

“The absence of appellate authority alone suggests that this case should be allowed to proceed past the pleading stage on this issue,” according to the brief. “Here, Rococo Steak has adequately alleged that COVID-19 and the resulting closure orders caused a loss of function and diminishment of covered property.”

Certification to the Florida Supreme Court is appropriate in Rococo’s case, the steakhouse concluded, saying the Eleventh Circuit would benefit from the state high court’s resolution of whether loss of use or functionality constitutes a “direct physical loss” of covered property, because there is no controlling Florida Supreme Court case on the issue.

Counsel for Rococo and Aspen did not immediately respond Wednesday to requests for comment.

Rococo Steak is represented by Steven H. Osber and Kyle S. Roberts of Conrad & Scherer LLP, and Timothy W. Burns of Burns Bowen Bair LLP.

Aspen Specialty Insurance is represented by Yvette Ostolaza, Chandler Rognes and Virginia Seitz of Sidley Austin LLP, and Patrick Betar and William S. Berk of Berk Merchant & Sims PLC.

The case is Rococo Steak LLC v. Aspen Specialty Insurance Co., case number 21-10672, in the U.S. Court of Appeals for the Eleventh Circuit.

 

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U.S. District Judge Edmond Chang should reject Society’s bid to apply his ruling tossing civil authority claims from three bellwethers in the MDL because the request is part of the insurance company’s aim to refuse to cover their COVID-19-related business losses and then take “every step possible to hinder [their] litigation of those denied claims.”

“Those steps include, but are by no means limited to, Society’s efforts to keep these cases fragmented, including its persistent refusal to acknowledge that, despite its efforts before the Judicial Panel on Multidistrict Litigation to halt the panel’s formation of this MDL proceeding, the JPML did, in fact, form it,” the policyholders said. “Society’s present motion is just the latest iteration of that strategy.”

Society argued last week that Judge Chang’s denial of civil authority and contamination coverage in three bellwether cases should be applied to 39 suits in the MDL similarly asking for that coverage, as well as two other cases asking solely for civil authority coverage. The insurer argued that applying the bellwether ruling MDL-wide would help streamline the proceeding.

But the policyholders, including bars such as The Whistler in Chicago and Wiseguys Pizzeria & Pub in Wisconsin, argued that the insurer’s bid broaden the bellwether ruling’s scope is based on its misreading of the first case management order Judge Chang entered in the case.

Judge Chang said in that order that he wanted to resolve bellwether case dispositive and issue-dispositive motions on an earlier track, and he did, they argued. Society’s bid to expand the scope of that provision in the court’s case management order “both disregards the limited nature of that initial bellwether process and, again, finds Society proposing a course of action that would unwind the JPML’s ruling and affirmatively undermine the purpose and function of MDL litigation,” the policyholders said.

“Society doesn’t get to attack each of the constituent actions comprising this MDL in this manner,” they argued. “Indeed, Society argued against the formation of this MDL proceeding before the JPML and lost that fight.”

Judge Chang tested Society’s motions to dismiss and for summary judgment in three bellwether cases on policy interpretation issues over the denial of coverage for the pandemic that are common to most of the 40-plus cases folded into the MDL, which was formed by the JPML.

Two of the suits were brought in Illinois federal court by Chicago-area restaurants, theaters and bars dubbed the “Big Onion plaintiffs,” and a Glenview, Illinois, eatery called Valley Lodge. A group of bars and restaurants known as the “Rising Dough plaintiffs” filed the third federal suit in Wisconsin.

In the February ruling, Judge Chang allowed the restaurants, bars and theaters to proceed on business income coverage claims. But the judge dismissed the policyholders’ claims under civil authority coverage, saying the stay-at-home orders did not prohibit them from accessing the properties.

Judge Chang also said the policyholders could not tap into the contamination provision, which extended coverage for lost business income and cleaning costs associated with closures due to contamination. The policyholders did not claim that they closed based on an actual COVID-19 contamination, the judge said.

Society has already asked for an immediate appeal of Judge Chang’s refusal to dismiss the policyholders’ claims for business income coverage. It argued that the Seventh Circuit should be allowed to answer whether the policyholders’ loss of use of property is a “direct physical loss” under its policies.

Counsel for the policyholders declined to comment on Wednesday. Representatives for Society didn’t immediately respond Wednesday to a request for comment.

The policyholders are represented by co-lead counsel Adam J. Levitt of DiCello Levitt Gutzler LLC; W. Mark Lanier of The Lanier Law Firm PC; Timothy W. Burns of Burns Bowen Bair LLP; Shelby Guilbert Jr. of McGuire Woods, Shannon McNulty of Clifford Law Offices, and others.

Society is represented by co-lead counsel Laura A. Foggan and April N. Ross of Crowell & Moring LLP; Thomas B. Underwood of Purcell & Wardrope Chtd., and others.

The case is In Re: Society Insurance Co. COVID-19 Business Interruption Protection Insurance Litigation, MDL number 2964 and case number 1:20-cv-05965, in the U.S. District Court for the Northern District of Illinois.

–Additional reporting by Shawn Rice. Editing by Rich Mills.

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Lexington Insurance Co. and other insurers asked the court last month to toss the tribe’s suit seeking COVID-19 business-interruption coverage for a proposed class that purchased insurance from a tribal property insurance plan, arguing that they failed to allege physical loss or damage to their insured properties that would trigger coverage under the policy.

The Menominee tribe, along with its Menominee Casino Resort and the Wolf River Development Co., said in a response Friday that two suits in the same court by policyholders over coronavirus business-interruption coverage that were dismissed last year actually back the tribe’s claims against Lexington and the other insurers.

While Lexington, whose motion to dismiss was joined by several other insurers, is “essentially maintaining if not outright saying — contrary to this court’s earlier rulings — that there exists no circumstance in which a policyholder can recover for COVID-19 losses,” the tribe’s amended complaint follows the “roadmap” for such claims laid out in those earlier cases, according to the Menominee.

The tribe said it “need[s] only allege that COVID-19 was present on its property and rendered the property unsafe or diminished its function” to show physical loss or damage, and “there is no further requirement of structural alteration of the property.” And the insurers’ “contention that COVID-19 harms people, not property does nothing to make the Menominee’s allegations less plausible,” according to the tribe, and it should be left to a jury to decide whether the evidence supports the tribe’s claims.

The Menominee first filed the proposed class action in November in California state court, before it was removed to a federal venue in January. The tribe amended its complaint in March, asserting breach of contract claims. The tribe owns a number of businesses including hotels, casinos, restaurants and health care facilities, all of which have suffered direct physical losses or damages from the coronavirus, according to court documents.

The proposed class purchased a 10-year policy from the Tribal Property Insurance Program that ended in July. The policy, prepared by Tribal First, which is an Alliant Underwriting Services Inc. program, holds a number of insurance policies from more than a dozen insurance carriers, court documents show.

The Menominee tribe said it submitted its claim to the insurers to help cover business-interruption losses from the pandemic and closure orders, which the insurers denied. By denying coverage, the insurers breached their coverage obligations under the policy, the proposed class argued.

In seeking dismissal of the case, the insurers, which also include Endurance Worldwide Insurance, Allied World National Assurance Co., Arch Specialty Insurance Co., Liberty Mutual Fire Insurance Co., Landmark American Insurance Co., Evanston Insurance Co. and Hallmark Specialty Insurance Co., argued that the tribe hadn’t adequately alleged physical loss or damage and that its insurance policies clearly include virus exclusions that foreclose its bid for coverage.

The question of whether businesses are incurring physical damage from the pandemic worthy of loss coverage has fueled litigation across the country, as business owners face off against insurers in court over pandemic-related loss claims. In Missouri, a federal judge ruled in August that the presence of the virus made a property unusable and, therefore, triggered a physical loss.

On Friday, the Menominee tribe said it brought claims similar to those from Studio 417 and other hair salons and restaurants in the Missouri case, in which the court rejected an insurer’s assertion that its policies’ core requirement of direct physical loss or damage can be satisfied only by a tangible alteration to property.

“Just like the plaintiffs in Studio 417, the Menominee have alleged that persons with COVID-19 were on covered property, infected the covered property, and rendered it unsafe and diminished its function,” the tribe said, noting that 42 employees of its businesses tested positive for COVID-19 last year.

The tribe also argued that two other decisions from the Northern District of California — though they didn’t go the plaintiffs’ way — established standards for bringing coronavirus-related complaints that the tribe is able to meet.

In November, the same judge overseeing the current case, U.S. District Judge William H. Orrick, axed a suit from Hawaiian souvenir store chain Water Sports Kauai Inc. seeking COVID-19 loss coverage from Allianz insurance units, ruling that the “mere threat of coronavirus” does not cause a direct physical loss of or damage to covered properties.

And in September, another Northern District of California judge tossed a proposed class action filed by children’s clothing boutique Mudpie Inc. against Travelers Casualty Insurance Co. of America, concluding that because the retailer hasn’t alleged that COVID-19 was present or directly caused the loss, there was no physical force that led it to lose business.

The Menominee tribe said in its response that the court “ruled against the policyholders in those cases, dismissing their complaints, but in doing so also set forth the legal principles that govern whether subsequent COVID-19 business-interruption insurance complaints would sufficiently state a claim.” The tribe argued it had adequately alleged “direct physical loss or damage” to its property under the business-interruption provisions of its policy as well as several other provisions.

The tribe said it’s not required to show structural alteration to its property to show damage or loss, but that it has nevertheless alleged that the coronavirus had changed its property and made it “dangerous to handle and/or enter,” and that the virus “cannot be eliminated by simple cleaning and disinfecting.”

And the tribe contended that its policy “does not include, and is not subject to, an exclusion for losses caused by the spread of viruses or communicable diseases.”

Representatives for the parties did not immediately respond to requests for comment Monday.

The proposed class is represented by Andrus Anderson LLP, DiCello Levitt Gutzler LLC, Burns Bowen Bair LLP and the Lanier Law Firm PC.

The insurers are represented by Zelle LLP and Gibson Dunn & Crutcher LLP.

The case is Menominee Indian Tribe of Wisconsin et al. v. Lexington Insurance Co. et al., case number 3:21-cv-00231, in the U.S. District Court for the Northern District of California.

–Additional reporting by Melissa Angell, Shawn Rice and Lauren Berg. Editing by Breda Lund.

U.S. District Judge Edmond E. Chang’s denial of civil authority and contamination coverage in three bellwether cases should be applied to the businesses’ 39 suits asking for that coverage as well as two suits asking solely for civil authority coverage, Society said in Thursday’s filing.

“In line with the purpose of the bellwether mechanism to allow the court to streamline this MDL proceeding, this court should dismiss from the remaining MDL actions all claims that are premised on civil authority and/or contamination coverage provisions,” Society said.

Judge Chang tested Society’s motions to dismiss and for summary judgment in three bellwether cases on policy interpretation issues over the denial of coverage for the pandemic that are common to most of the 40-plus cases folded into the MDL, which was formed by the Judicial Panel on Multidistrict Litigation.

Two of the suits were brought in Illinois federal court by Chicago-area restaurants, theaters and bars dubbed the “Big Onion plaintiffs,” and a Glenview, Illinois, eatery, called Valley Lodge. A group of bars and restaurants known as the “Rising Dough plaintiffs” filed the third federal suit in Wisconsin.

In the February ruling, Judge Chang allowed the restaurants, bars and theaters to proceed on business income coverage claims. But the judge dismissed the policyholders’ claims under civil authority coverage, saying the stay-at-home orders did not prohibit them from accessing the properties.

Judge Chang also said the policyholders could not tap into the contamination provision, which extended coverage for lost business income and cleaning costs associated with closures due to contamination. The policyholders did not claim that they closed based on an actual COVID-19 contamination, the judge said.

Society has already asked for an immediate appeal of Judge Chang’s refusal to dismiss the policyholders’ claims for business income coverage. It argued the Seventh Circuit should be allowed to answer whether the policyholders’ loss of use of property is a “direct physical loss” under its policies.

Counsel for Society declined to comment on Friday.

Counsel for the policyholders did not respond to requests for comment.

The policyholders are represented by co-lead counsel Adam J. Levitt of DiCello Levitt Gutzler LLC; W. Mark Lanier of The Lanier Law Firm PC; Timothy W. Burns of Burns Bowen Bair LLP; Shelby Guilbert Jr. of McGuireWoods, Shannon McNulty of Clifford Law Offices, and others.

Society is represented by co-lead counsel Laura A. Foggan and April N. Ross of Crowell & Moring LLP; Thomas B. Underwood of Purcell & Wardrope Chtd., and others.

The case is In Re: Society Insurance Co. COVID-19 Business Interruption Protection Insurance Litigation, MDL number 2964, in the U.S. District Court for the Northern District of Illinois.

–Additional reporting by Celeste Bott and Jeff Sistrunk. Editing by Peter Rozovsky.

The policyholders, including an Ohio record store that also acts as craft beer pub and a New York jeweler, told U.S. District Judge Matthew W. McFarland on Monday that they had sufficiently shown the virus particles caused a direct physical loss or damage to their properties, as called for in their insurance policies.

Cincinnati Insurance Co., which asked the court to toss the suit, failed to fully appreciate the range of meaning in the phrase “direct physical loss,” the policyholders contended, saying that its plain meaning would include the loss of a building’s use, and not necessarily require any structural alterations.

The insurer chose to forego a textual analysis of the phrase in favor of trotting out a “scorecard of judicial decision wins and losses,” the policyholders said in their response to Cincinnati’s dismissal bid.

The record store, Craft & Vinyl in Columbus, Ohio, closed its doors in mid-March last year in compliance with Buckeye State restrictions, according to court records. The jeweler, Reeds Jewelers, was also forced to shut down for a time after it was deemed a non-essential business. Both businesses have since reopened as restrictions eased.

The businesses said in their consolidated complaint in February that they planned to produce expert testimony to show that even if alterations were required for coverage, they would still qualify.

“The probability of illness prevents the use of property in no less of a way than, on a rainy day, a crumbling and open roof from the aftermath of a tornado would make the interior space of a business unusable,” the policyholders said at the time.

In their Monday filing, they likened coronavirus particles to particles from dangerous materials like asbestos, lead, and ammonia gas, which would be covered by insurance policies.

The question of whether virus particles cause insurable property damage is currently before the Ohio Supreme Court, which agreed in April to look into the issue on behalf of a district court hearing a suit against Cincinnati brought by an Ohio audiology practice.

U.S. District Judge Benita Y. Pearson had refused to rule on the matter, calling the interpretation of state law “unresolved,” and said she was in need of a ruling from the state supreme court to ensure uniformity across Ohio. High courts in New York, Pennsylvania, and Florida have also been tasked in recent months with COVID-19 coverage questions.

Craft & Vinyl fought an effort made by Cincinnati last year to bring the Ohio Supreme Court into its case, then a standalone suit. The record store said the question of whether the coronavirus caused physical damage wasn’t one of state law. It accused the insurer of trying to secure a favorable ruling before the suit’s consolidation.

The policyholders on Monday, however, said it would be inappropriate to dismiss their case because multiple credible interpretations of the meaning of “direct physical loss or damage” still existed. They added that their interpretation of the phrase should take precedence over Cincinnati’s at this stage in the litigation process, before they get the opportunity to produce more evidence supporting their position.

Counsel for the policyholders declined to comment.

Counsel for Cincinnati did not immediately respond to requests for comment.

Troy Stacy Enterprises, doing business as Craft & Vinyl, is represented by Mark A. DiCello, Kenneth P. Abbarno, Mark Abramowitz, Adam J. Levitt, Amy E. Keller, Daniel R. Ferri, Mark Hamill and Laura E. Reasons of DiCello Levitt Gutzler LLC, Mark Lanier, Alex Brown and Skip McBride of the Lanier Law Firm PC, and Timothy W. Burns, Jeff J. Bowen, Jesse J. Bair and Freya K. Bowen of Burns Bowen Bair LLP.

Reeds Jewelers of Niagara Falls Inc. is represented by William R.H. Merrill, Burton S. DeWitt, Seth Ard, Marc M. Seltzer, Steven Sklaver and Jesse-Justin Cuevas of Susman Godfrey LLP, John Scott Black, Richard D. Daly and Melissa Wooden Wray of Daly & Black PC, and by Randolph H. Freking of Freking Myers & Reul LLC.

Cincinnati Insurance Co. is represented by Michael K. Farrell, Rodger L. Eckelberry and Carrie Dettmer Slye of BakerHostetler, and by Daniel G. Litchfield, Michael P. Baniak and Laurence J. Tooth of Litchfield Cavo LLP.

The case is Troy Stacy Enterprises Inc. et al. v. The Cincinnati Insurance Company et al., case number 1:20-cv-312, in the U.S. District Court for the Southern District of Ohio.

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