Law360 (January 14, 2022, 5:56 PM EST) — COVID-19 coverage issues should continue to be sent to the highest courts in each state instead of being decided piecemeal by federal courts, policyholder attorneys told Law360 on the same day that the Seventh Circuit heard four more cases over denied insurance coverage for losses during the pandemic.

A group of policyholders — with cases from Indiana, Wisconsin and Illinois federal courts — urged the Seventh Circuit on Friday to give their coverage suits over pandemic-related losses another chance despite the federal appellate court’s previous rulings in December in favor of insurers.

The Seventh Circuit in December ruled the loss of use of property for policyholders without any physical alteration wasn’t a physical loss triggering coverage. The rulings, which also addressed several exclusions, led to one group of businesses dropping their appeal.

With five Seventh Circuit appeals decided or voluntarily dismissed, another poor showing in Friday’s four cases is a concern for policyholder attorneys. They warned federal appellate courts are deciding COVID-19 coverage issues that haven’t yet been interpreted by the highest courts in relevant states.

Tim Burns of Burns Bowen Bair LLP, who counsels policyholders, described what’s going on at the Seventh and Sixth Circuits — another federal appellate court that has put out several rulings — like a dinner scene in the 1983 comedy film, “Reuben, Reuben” where an arrogant upper middle class type drones on to a Scottish poet about taking a speed-reading course.

“The poet says, ‘I wish I could take a slow reading course.’ In much the same way, I wish the Sixth and Seventh Circuits would take a slow reading course and let these cases develop. Decisions devoid of factual development and context tend to be bad decisions,” Burns said in a statement to Law360.

Seth Lamden of Blank Rome LLP pointed to the Seventh Circuit’s recognition in one of the cases, Sandy Point Dental PC v. Cincinnati Insurance Co., that there isn’t any interpretation yet by the Illinois Supreme Court on “physical loss or damage” as reason enough that the issue among others should be certified.

Though the Illinois Supreme Court doesn’t have a COVID-19 coverage case before it, the Wisconsin Supreme Court does — which could impact Wisconsin federal cases before the Seventh Circuit.

Lamden, who represents policyholders, had misgivings with the Seventh Circuit’s earlier reliance on a particular case, Travelers Ins. Co. v. Eljer Mfg. Inc., saying that the Illinois justices interpreted “very different” language found in a commercial general liability policy rather than a property insurance policy for a construction defect case.

“There is a concern because if the Wisconsin or Illinois Supreme Courts rule in favor of coverage, policyholders with adverse rulings in the Seventh Circuit will have been unfairly prejudiced by federal decisions that incorrectly predicted state law because the federal decisions were issued first,” he said.

Demands For Certification

The Seventh Circuit’s relative quickness in moving through appeals is indicative of insurance companies’ “strategic choice to fast-track” motions to dismiss in these cases before policyholders could conduct discovery, according to Bradley Dlatt of Perkins Coie LLP, who represents policyholders.

He told Law360 in an emailed statement that “fast-tracking a huge swath of similar cases is normal where there’s a similar, discrete legal issue” but the problem here is that there wasn’t development of evidence on the impact the virus has to property in early-filed cases that “won the race” to the Seventh Circuit.

The Seventh Circuit is “wrong so far” in its refusal to certify critical issues of state law, Pillsbury Winthrop Shaw Pittman LLP’s Scott Greenspan told Law360. He said that a “shining example” on how to act is the First Circuit — which issued stays in similar disputes pending a decision from the Massachusetts Supreme Court.

“State supreme courts are taking umbrage at the refusal of most federal courts to certify COVID-19 coverage questions to them and are acting on it,” said Greenspan, who represents policyholders, noting that Wisconsin, Washington and Iowa state high courts have issued bypass orders so cases will skip intermediate appellate courts and head straight to the top.

“State supreme courts are taking control of their own state law back from the actions of federal courts to decide COVID-19 coverage issues under federal common law by issuing a wave of bypass orders to take immediate review of COVID-19 coverage appeals,” he said.

But a lot of the federal appellate courts “have fallen into a similar trap of relying exclusively” on each other and early trial court rulings rather than looking at state law, according to Dlatt of Perkins. He echoed other policyholder attorney concerns that federal appellate courts are ignoring certification of the coverage questions to state high courts.

“It is easier for the federal courts to say, ‘look at what Judge X in Court Y’ said on an undeveloped, premature record instead of admitting they are not experts and sending the case back for complete discovery below, or waiting for state supreme courts to rule,” Dlatt said.

Federal Appellate Speediness

Attorneys for insurance carriers see resolutions by federal appellate courts as a better, more efficient way when a state high court isn’t addressing all relevant issues to a case — like a virus exclusion.

Jonathan Schwartz of Goldberg Segalla LLP, who represents insurance carriers, said once the Seventh Circuit “did the heavy lifting” on the four Illinois cases back in December, it made sense to resolve the Wisconsin and Indiana case appeals given the “great importance” to both insureds and insurers.

Insureds are taking a “contradictory approach” to file cases in federal court and then take them to the federal appellate court to now ask for stays to get them before state high courts, he said.

Where a case like the one before the Ohio Supreme Court doesn’t have a virus exclusion, Schwartz explained the Sixth Circuit should tackle that issue and make its best guess on the physical loss issue. Any conflict could be resolved at a later time, he said.

Hinshaw & Culbertson LLP partner Scott Seaman told Law360 in an emailed statement that the Seventh Circuit is understandably reaching decisions quickly to find there isn’t coverage for these claims under the policy language and state contract law. State law “is readily discernible to the sophisticated justices,” he said.

“The Seventh Circuit stands in good company,” Seaman said, referencing the majority outcome of no coverage in sister circuits at the federal appellate level for insurance carriers. “If this were poker you could say the insurers had a straight flush, it would be a royal flush if there were more circuits.”

The cases heard Friday are Circle Block Partners LLC et al. v. Fireman’s Fund Insurance Co., case number 21-2459, Paradigm Care & Enrichment Center LLC et al. v. West Bend Mutual Insurance Co., case number 21-1695, Green Beginnings LLC v. West Bend Mutual Insurance Co., case number 21-2186, and Melcorp Inc. v. West American Insurance Co., case 21-2448, in the U.S. Court of Appeals for the Seventh Circuit.

–Additional reporting by Eli Flesch and Ben Zigterman. Editing by Nick Petruncio.

Law360 (December 15, 2021, 9:16 PM EST) — A restaurant operator urged a Michigan appeals court Wednesday to consider a layman’s understanding of “direct physical loss or damage” when determining whether its insurance should cover losses from pandemic-related shutdowns, comparing the phrase’s meaning to temporarily taking a toy away from a child.

Policyholders have sought to try their luck with state courts in arguing that the COVID-19 pandemic and related shutdown orders caused physical damage that would warrant insurance coverage. (AP Photo/Jae C. Hong)

Arguing for restaurant operator Gavrilides Management Co. LLC, Timothy Burns of Burns Bowen Bair LLP told the appeals panel that, under a layman’s reading, “direct physical loss or damage” can include the temporary loss of use of a property. The meaning of that five-word phrase is at the crux of Gavrilides’ coverage dispute with Michigan Insurance Co., as it has been in hundreds of similar COVID-19 business interruption cases nationwide.

“I’ve actually known the meaning of that term, and that term included the temporary deprivation of property by civil authority, since I was 5 years old,” Burns said, likening the situation to his mother temporarily taking away his toys as a child.

“Now, my mom didn’t mean she was going to take a sledgehammer and structurally alter my toys. She didn’t mean that she was going to permanently dispossess me of my toys,” he continued, arguing that loss of income due to state government shutdown orders constitutes a direct physical loss in Gavrilides’ policy with Michigan Insurance.

The three-judge panel should read the insurance policy like an ordinary person would and mandate coverage, Burns said.

Gavrilides appealed a lower trial court’s July 2020 decision holding that there had to be tangible, physical damage to its properties to trigger coverage. The pro-insurer decision marked the first time any court had decided a COVID-19 coverage dispute on the merits. Gavrilides has now asked the state court of appeals to vacate the trial court’s ruling and remand the case, allowing the operator to amend its original complaint.

If permitted to amend, Gavrilides would also plead direct physical loss due to separated tables and other mitigation measures for in-person dining, along with the likelihood of the novel coronavirus in the air, Burns said. Gavrilides had only originally pleaded loss of income due to the state closure orders.

A large part of the three-judge panel’s attention Wednesday focused on a separate virus exclusion in the policy, which bars coverage for “loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease,” according to policy language included in the appellate briefs.

Because “loss or damage” only refers to physical loss or damage to the property and does not extend to Gavrilides’ loss of income, the exclusion is thus inapplicable to the case, Burns argued. If Michigan wanted to totally exclude coverage for viruses, it should have broadened its language like it did with other exclusions, he said.

Regardless of the virus exclusion, Burns stressed it was “absolutely critical” that the panel issue a ruling on the direct physical loss or damage provision.

Michigan Insurance, for its part, reiterated that Gavrilides had to show tangible damage to the property in order to trigger coverage, adding that the court cannot hold the insurer liable for a risk that it did not assume to begin with.

Butzel Long attorney Kurtis Wilder, representing Michigan Insurance, further pointed to a separate “loss of use” exclusion that he said should bar coverage, beyond the “unambiguous” virus exclusion. But, Burns rebutted, the “loss of use” exclusion is only designed to bar coverage for loss of use of the restaurants’ physical space and not loss of income due to the shutdown orders.

“Every hospital in the country has COVID-19 in it. And every hospital is being used to its purposes,” Wilder continued. Just because the restaurants were specifically barred from indoor dining, it doesn’t mean they couldn’t have been put to other uses, he said.

“The idea that there’s some physical loss of or damage to the property because of this virus is just untenable,” he added, arguing that it would be futile for Gavrilides to amend its complaint.

Counsel for Michigan Insurance did not immediately respond to Law360’s request for comment.

“I thought the court was well-prepared, thoughtful, and polite, and recognized the importance of the case. I was very impressed by the amount of time they allowed for argument and the patience of the judges,” Burns said of Wednesday’s oral arguments in a statement to Law360. “They let me say my piece and had penetrating questions. A lawyer can’t ask for much more.”

Since the trial court’s ruling in July 2020, policyholders have sought to try their luck with state courts in arguing that the pandemic and related shutdown orders caused physical damage that would warrant coverage.

According to Law360’s COVID Insurance Case Tracker, federal courts have permanently thrown out approximately 41% of the 1,304 cases policyholders have lodged against their insurers seeking COVID related coverage as of Dec. 7, while 17% were voluntarily dismissed and 40% remain ongoing.

Gavrilides Management Co. LLC is represented by Matthew J. Heos of The Nichols Law Firm PLLC, Timothy W. Burns and Freya K. Bowen of Burns Bowen Bair LLP, Adam J. Levitt, Mark Hamill and Kenneth P. Abbarno of DiCello Levitt Gutzler LLC, Mark Lanier of The Lanier Law Firm PC, and Douglas Daniels of Daniels & Tredennick.

Michigan Insurance Co. is represented by Drew W. Broaddus of Secrest Wardle, Kurtis T. Wilder of Butzel Long, and Robert M. Runyon of Horst Krekstein & Runyon LLC.

The case is Gavrilides Management Co. LLC et al., v. Michigan Insurance Co., case number 354418, in the Michigan Court of Appeals.

–Additional reporting by Jeff Sistrunk and Ben Zigterman. Editing by Haylee Pearl.

In four back-to-back oral arguments covering seven different cases Thursday, the panel heard from a range of businesses that claim their policies with insurers Aspen Specialty Insurance Co., Zurich American Insurance Co., West Bend Mutual Insurance Co.,and Cincinnati Insurance Co. cover their pandemic-related losses.

For hours, the judges peppered counsel on both sides with questions and hypothetical scenarios about when a business would and would not be covered under the insurance policies. The insurers argued the businesses suffered no physical damage or loss of use that would warrant coverage.

Counsel for the owner of the Ritz-Carlton in Dallas disagreed.

“The parties were clear in this policy that communicable disease and public closure orders, even food poisoning, was a risk of direct physical loss or damage,” said Timothy W. Burns of Burns Bowen Bair LLP, urging the panel to reverse.

But according to Jeffrey Babbin of Wiggin & Dana LLP, counsel for the hotel’s insurer, Zurich American, “There has to be physical loss or damage to property, and let’s be clear, the Dallas Ritz-Carlton suffered no such loss.”

U.S. Circuit Judge Diane P. Wood said at one point during the hearings Friday that she was struggling to understand the businesses’ argument that executive orders requiring people to stay home amid the pandemic “did anything, physically,” to their properties, and said she found the argument that the orders don’t fall within an ordinance or law exclusion “pretty hard to swallow.”

U.S. Circuit Judge David F. Hamilton said he was struggling to grasp the insurers’ argument that viruses are not a form of microorganism, saying that if he were a district court judge and an insurer took the position that the term “microorganism” applied to bacteria but not viruses, he’d “probably be inclined to award punitive damages against the insurance companies trying to draw that line.”

Jason O. Barnes of Simmons Hanly Conroy, counsel for a restaurant fighting Cincinnati Insurance, agreed with Judge Hamilton, arguing that COVID-19 travels via droplets in the air, which are physical things, and that “to suggest otherwise throws 150 years of science out the window.”

Joseph Lubin, who is representing another business fighting Cincinnati Insurance, said it was the insurance companies’ role to exclude the risk of viruses if they thought they should do so.

Lubin said that while insurers changed some policies to exclude losses stemming from communicable diseases like SARS, “this is one of the policies where they didn’t fix it.”

Steven Mikuzis of Mag Mile Law LLC, representing Bradley Hotel Corp. which owns a Quality Inn in Illinois, said similarly that “for whatever reason,” Aspen Specialty Insurance Co. “chose to write a broad policy,” and that it can’t back out of it now.

But counsel for Aspen, Virginia A. Seitz of Sidley Austin LLP, argued that “loss of use is excluded when it’s untethered to physical loss or damage.”

Jason R. Fathallah of Husch Blackwell LLP, counsel for West Bend Mutual Insurance Co., argued that the pandemic-related loss alleged by a small business in Illinois must be permanent for insurance coverage to be triggered.

But Judge Wood said she didn’t understand “at all” why partial, but temporary loss, is insufficient to trigger coverage.

The judges took all the cases under submission.

Representatives and counsel for the parties did not immediately respond to requests for comment Friday afternoon.

Judges Daniel A. Manion, Diane P. Wood, and David F. Hamilton sat on the panel for the Seventh Circuit.

Bradley Hotel is represented by Steven Mikuzis of Mag Mile Law LLC.

Aspen Specialty Insurance Co. is represented by Virginia A. Seitz of Sidley Austin LLP.

Crescent Plaza Hotel Owner LP is represented by Timothy W. Burns of Burns Bowen Bair LLP.

Zurich American Insurance Co. is represented by Jeffrey Babbin of Wiggin & Dana LLP.

Mashallah is represented by William E. Meyer Jr. of Fuksa Khorshid LLC.

West Bend Mutual Insurance Co. is represented by Jason R. Fathallah of Husch Blackwell LLP.

Bend Hotel Development Co. is represented by Jonathan Lubin of the Law Office of Jonathan Lubin.

TJBC Inc. is represented by Jason O. Barnes of Simmons Hanly Conroy.

Cincinnati Insurance Co. is represented by Daniel G. Litchfield of Litchfield Cavo LLP.

The cases are Bradley Hotel Corp. v. Aspen Specialty Insurance Co., case number 21-1173; Crescent Plaza Hotel Owner LP v. Zurich American Insurance Co., case number 21-1316; Mashallah Inc v. West Bend Mutual Insurance Co., case number 21-1507; and the consolidated case Bend Hotel Development Co. v. Cincinnati Insurance Co., case number 21-1559, all in the U.S. Court of Appeals for the Seventh Circuit.

–Editing by Marygrace Murphy

Eli Flesch | Law360 (August 25, 2021)

A group of policyholders has asked the Eleventh Circuit to save their separate pandemic coverage suits, saying lower court dismissals of their cases failed to account for meanings of physical loss that could qualify them for coverage.

The policyholders, two pizzerias in Florida and a Georgia-based hotel operator, said Tuesday that government pandemic restrictions that deprived them of the use of their property should be covered under policies they held with underwriters at Lloyd’s of London and the Liberty Mutual unit Employers Insurance Co. of Wausau.

The pizza companies, Gio Pizzeria & Bar Hospitality LLC of Coral Springs and Gio Pizzeria Boca of Boca Raton, said they paid premiums to underwriters at Lloyd’s under the expectation that they would be covered for the loss of their property, regardless of the cause. Saying their policies contained no virus exclusion, the pizzerias argued that the Florida district court misinterpreted their policy when it dismissed their suit.

“We hope that the Eleventh Circuit does what few of the district courts have done in these cases — actually interpret the policy language like an ordinary person would,” Tim Burns, an attorney for Gio’s, told Law360. “An ordinary person would go to the dictionary and recognize that the presence of COVID-19 or closure orders based upon COVID-19 causes a direct physical loss of their property.” COVID-19 is the respiratory ailment caused by the coronavirus.

The pizzerias said they had adequately alleged that the presence of the coronavirus in their bars and dining establishments made them unsafe for use, reducing what space could function properly and requiring expensive physical alterations.

It criticized the district court for its reliance on an oft-cited Eleventh Circuit decision, Mama Jo’s v. Sparta Insurance , which found no insurable damage was done to a restaurant filled with debris from a nearby construction site because routine cleaning resolved the problem. Insurers have raised Mama Jo’s to suggest that a property that can be cleaned to remove the coronavirus hasn’t experienced any physical damage.

“An ordinary person wouldn’t search the federal reporters for an unpublished decision involving road dust (Mama Jo’s) to understand what is meant by the term ‘direct physical loss’ or damage in the context of COVID-19,” Burns told Law360 on Wednesday.

The Georgia hotelier, Ascent Hospitality Management Co., said a lower court misinterpreted its policy to suggest that the kind of physical loss required for coverage must entail some sort of physical alteration. Just the presence or the suspected presence of the coronavirus counted as a covered loss under the policy, it said.

“Ascent Hospitality’s premises became unusable and inoperable because of both the presence of the virus and the governmental orders prohibiting access to its property, and Ascent Hospitality suffered a diminution and deprivation of its premises and sustained physical loss or damage, as required by the policy,” the hotelier argued.

It added that a contamination exclusion in its policy didn’t preclude coronavirus coverage because it was meant only to bar coverage for losses stemming from spills of hazardous substances or pollutants. The exclusion was not a virus exclusion, the hotelier stressed, saying it could not be invoked to deny coverage for pandemic losses.

Ascent, which saw its case dismissed by an Alabama federal court in May, operates a national portfolio of 30 hotels that include Marriott, Hilton and Hampton Inn locations in Alabama and across the South, with additional hotels in Indiana.

U.S. Magistrate Judge Gray M. Borden said at the time that properties contaminated with virus particles need only a routine cleaning, not the fixing or repairing for buildings that have been physically damaged, a requirement for coverage in Ascent’s policy. To succeed in their fights for coverage, the businesses would have had to “shoehorn” the meaning of cleaning and disinfecting into the ordinary definition of repairs, Borden said.

A spokesperson for Liberty Mutual declined to comment on Ascent’s appeal.

Counsel for the insurers and Ascent did not immediately respond to requests for comment.

Gio’s pizzerias are represented by Tim Burns, Jeff Bowen, Jesse Bair, Freya Bowen of Burns Bowen Bair LLP, William R. Scherer and Michael E. Dutko Jr. of Conrad & Scherer LLP, Adam J. Levitt, Mark A. DiCello, Kenneth P. Abbarno and Mark M. Abramowitz of DiCello Levitt Gutzler, and by Mark Lanier, Alex Brown and Skip McBride of the Lanier Law Firm.

Certain underwriters at Lloyd’s are represented by Paul L. Fields Jr., Armando P. Rubio, and Gregory L. Mast of Fields Howell LLP, and by David E. Walker and Fred L. Alvarez of Walker Wilcox Matousek LLP.

Ascent is represented by James Edward Murrill Jr. and Robert R. Riley Jr of Riley & Jackson PC.

Employers Insurance Co. of Wausau is represented by Josh B. Baker, Josh Hess, John Neiman and Mary K. Mangan of Maynard Cooper & Gale, and Melissa D’Alelio, Pamela Berman and Sandra Badin of Robins Kaplan LLP.

The cases are Gio Pizzeria & Bar Hospitality LLC et al. v. Certain Underwriters at Lloyd’s, case number 21-12229, and Ascent Hospitality Management Co. LLC v. Employers Insurance Co. of Wausau et al., case number 21-11924, in the U.S. Court of Appeal for the Eleventh Circuit.

–Editing by Neil Cohen.

Shawn Rice | Law360 (August 24, 2021)

Native American tribes and nations have seen mixed results in federal and state suits against insurance companies as they continue to bring litigation aiming to tap into billions of dollars of coverage for losses to casinos and resorts during the COVID-19 pandemic.

A California federal judge on Monday added to the loss tally by throwing out the Menominee Indian Tribe of Wisconsin’s proposed class suit against Lexington Insurance Co. and other insurers, saying the presence of the coronavirus didn’t cause “direct physical loss or damage” to the tribe’s property.

The tribe, which operates businesses in Keshena, Wisconsin, including a casino and health care center, argued it made repairs due to an actual exposure of COVID-19 at its businesses. But the judge wasn’t convinced that installing physical barriers and increasing cleaning measures was the same as making repairs.

Tim Burns of Burns Bowen Bair LLP, counsel for Menominee, told Law360 that the tribes’ cases are similar to what’s happening across the board in pandemic-related cases and is “something that nobody had anticipated— state courts are focusing on policy language and federal courts are focusing almost exclusively on earlier case law, instead of reading the policy as a whole.”

“In an ideal world, if we are to have any hope that the legal process will actually honor the meaning of ordinary people in interpreting insurance policies, Congress would pass a law sending decisions on the ordinary meaning of undefined insurance policy terms to civil juries,” Burns said.

While Lexington successfully had Menominee’s suit tossed, the insurer was named among others, in a suit brought earlier this month by Riverside County, California-based Pechanga Band of Luiseno Indians in California state court, in efforts to tap into a $1 billion policy for its own pandemic-related losses.

Ho-Chunk Nation also dragged Lexington and others to Wisconsin state court seeking coverage for pandemic-related losses to its casino and hotels. Ho-Chunk’s insurance program is similar to ones in Oklahoma state suits where the Cherokee Nation and Choctaw Nation of Oklahoma scored favorable rulings this year.

Burns said the insurance recovery law of all 50 states commands that undefined policy terms be read as an ordinary person would read them. The Oklahoma state courts took this command more seriously, according to Burns, unlike federal courts, where a majority is ignoring the contract language as a whole and comparing the dispute in front of them to earlier case law involving different factual situations.

“It displays an approach to the law of someone fresh out of law school, who has spent three years reading judicial decisions, but not a nanosecond reading insurance policies or other contracts,” Burns said.

These tribe and nation cases represent situations where the insurance companies “sold very expensive, high premium broad coverage policies to the tribes,” according to Scott Greenspan of Pillsbury Winthrop Shaw Pittman LLP, who represents policyholders in similar COVID-19 coverage fights.

“The insurance carriers are trying a bait-and-switch. These carriers sold these high-end policies, and now their lawyers are trying to take them away,” Greenspan told Law360, noting that “sweeping” pandemic exclusions were available to the insurers but that they chose not to use them.

For example, Pechanga Band alleged losses caused by physical loss and damage from the presence of the coronavirus were covered, as there isn’t any exclusion for pandemics, diseases or viruses in the policy. The tribe highlighted the addition of a communicable disease exclusion used in the policy’s renewal.

But the virus exclusion was in play on the opposite side of the country in a recent decision.

A Connecticut state judge ruled last week that the Mashantucket Pequot Tribal Nation could potentially recover only $2 million from the $1.6 billion available under its policy with Factory Mutual Insurance Co., finding most of the tribe’s pandemic-related losses are subject to the virus exclusion.

State high courts are likely to have the final word in many of the tribes’ and nations’ disputes.

In the Midwest, for example, the Oklahoma Supreme Court is already poised to hear COVID-19 coverage suits involving Lexington and the Cherokee Nation and Choctaw Nation, which were granted summary judgment wins in state courts. This is expected to be the first state high court to rule on the physical loss or damage issue.

Because the cases are being heard under the Oklahoma high court’s “accelerated appeals” procedure, absent extraordinary circumstances, Michael Levine of Hunton Andrews Kurth LLP, told Law360 that the Oklahoma high court won’t accept further briefing, nor does he expect it to accept amicus briefing.

Levine said the Oklahoma state courts’ findings of fact based on undisputed facts that put the claim within coverage for physical loss or damage, coupled with a correct application of the rules of insurance policy interpretation and pre-pandemic precedent, allowed the court to find in favor of the tribal nations.

“Despite the ‘scoreboard’ that insurers continue to tout vociferously, the factual findings and legal conclusions in the cases on appeal are fundamentally sound, which should lead to affirmances in each of the decisions under review,” said Levine, who represents policyholders in COVID-19 coverage suits.

The Oklahoma high court’s ruling will be “closely watched,” according to Greenspan, who expects “the insurance industry to come out swinging because the trial courts’ scholarly opinions are so devastating to their positions.”

Representatives for Lexington and Factory Mutual didn’t immediately respond to requests for comment Tuesday.

–Additional reporting by Shane Dilworth and Daphne Zhang. Editing by Vincent Sherry.

Daphne Zhang | Law360 (August 24, 2021)

Society Insurance Co. has urged an Illinois federal judge to nix all bad faith claims against it in pandemic business-interruption multidistrict litigation, saying it never issued a blanket coverage denial over COVID-19 losses.

The carrier asked U.S. District Judge Edmond E. Chang on Monday to dismiss the bad faith claims asserted under Iowa, Indiana, Minnesota, Tennessee and Wisconsin law. Society said it did not act in bad faith by issuing widespread denials, and that each coverage decision was based on the specifics of individual claims.

The policyholders have said Society wrongfully refused to honor its coverage obligation by denying their coronavirus-related loss claims. The insureds argued that the carrier issued “wholesale, cursory coverage denials,” and that Society’s CEO Rick Parks misrepresented coverage and discouraged them from filing insurance claims.

Judge Chang in February refused to dismiss the claims for lost business income coverage asserted by several dozen Society policyholders in three lawsuits. The judge had selected dismissal or summary judgment motions filed by Society in the three cases to serve as bellwethers for addressing critical policy interpretation issues common to most of the 40-plus cases that have been folded into the MDL, which the Judicial Panel on Multidistrict Litigation formed in October 2020.

Two of the bellwether cases were filed in Illinois federal court: one by a group of Chicago-area bars, theaters and restaurants, dubbed the “Big Onion plaintiffs,” and the other by an eatery in Glenview, Illinois, called Valley Lodge. The third was filed in Wisconsin federal court by a group of bars and restaurants in Wisconsin, Minnesota and Tennessee, known as the “Rising Dough plaintiffs.”

In February, the Big Onion plaintiffs and Valley Lodge were also permitted to proceed with allegations that Society denied their insurance claims in bad faith.

“Society denied coverage based on the policy terms and whatever individual facts they provided in submitting their claims,” the insurer countered Monday. “Society did not deny coverage to any policyholder — let alone on a blanket basis to all policyholders — via the Parks Memos.”

According to Society, Parks said in a March 5, 2020, memo that coverage for COVID-19 infections was “unlikely” and that policyholders should be prepared for uninsured loss. The CEO also said the insurer’s coverage decisions will be made based on the specifics of each case. A few days later, after the World Health Organization declared COVID-19 a global pandemic, Parks said policyholders must show direct physical loss or damage to property to get coverage.

In its Monday motion, the insurance company said Parks’ memo provided general information about the pandemic and listed what policyholders should expect without reaching a conclusion that Society would definitely deny all lost business income claims. Although “Parks did explicitly state that COVID-19 exposure ‘is not a Spoilage Covered Cause of Loss,'” he “did not discuss a coverage determination being made by Society specifically,” the carrier said, emphasizing that the CEO’s memo was “not a claim denial, but a description of the insurance system.”

“Mr. Parks’ memos carefully use non-conclusory language and describe general concepts. They are designed to inform, not to dictate individual claim outcomes,” the carrier said.

Counsel for the parties didn’t immediately return phone calls seeking comment Tuesday.

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

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

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.

–Editing by Breda Lund

The American Property Casualty Insurance Association and the National Association of Mutual Insurance Companies said commercial property insurance policies pay only for losses related to natural disasters, such as fires and hurricanes, and were never intended to cover pure financial losses from a pandemic.

“Property insurers are not, and cannot be, guarantors against the consequences of all unfortunate events that impact society at large,” the two groups said.

In the brief, the APCIA and NAMIC said Skillets LLC, which operates nine restaurants in southwest Florida, cannot get coverage under its policy with Colony Insurance Co. Last week, Colony asked the Fourth Circuit to reject the restaurant chain’s bid to revive its suit over uncovered COVID-19 losses, saying there was no physical damage to the eateries’ properties.

This is not the first time the APCIA and NAMIC have backed insurers’ position on not covering businesses for COVID-19 and government order-related losses at the federal appellate level. In May, the two groups urged the Eleventh Circuit and Seventh Circuit to uphold Aspen Specialty Insurance Co.’s and Cincinnati Insurance Co.’s wins over furniture retailer Rooms To Go and a steak house owner, respectively.

The business income and extra expense coverages in property policies are “secondary to and dependent on direct physical loss or damage to property at the insured premises that requires repair or replacement,” the trade groups said Tuesday. Skillets’ “operations are not what is insured — the building and the personal property in or on the building are.”

The restaurants did not lose their buildings or any properties but temporarily lost their ability to provide “in-person dining services — a property right that was never insured,” the APCIA and NAMIC said.

The trade groups asked the Fourth Circuit to follow the Eighth Circuit’s July 2 decision in Oral Surgeons PC v. Cincinnati Insurance Co. in which the appellate court ruled government orders did not cause direct physical loss or damage to an Iowa dental clinic’s premises.

“The ephemeral presence of a virus within a building is not the type of physical loss of or damage to property that property insurance covers,” the groups said. The government closure orders were issued to curb the spread of the COVID-19 outbreak instead of due to any loss or damage that occurred at Skillets’ properties, they said.

The APCIA and NAMIC also cited a March 2020 National Association of Insurance Commissioners statement saying “business interruption policies were generally not designed or priced to provide coverage against communicable diseases, such as COVID-19” and asking insurers to cover pandemic-related economic losses would cause significant solvency risks for the industry.

According to the APCIA’s analysis, small business losses from the COVID-19 pandemic have been from $255 billion to $431 billion per month, while the total property-casualty industry surplus is about $800 billion. So forcing carriers to pay for pandemic risks would ruin their ability to cover wildfires, wind storms or thefts the policies were designed for, the group said.

“The ability of insurers to honor their promises made in insurance policies covering property perils would be dangerously undermined by a finding of coverage for purely economic losses attributable to the COVID-19 pandemic,” the APCIA and NAMIC said.

Representatives for the parties could not be immediately reached for comment Tuesday.

The two groups are represented by George E. Reede of Zelle LLP and Wystan M. Ackerman of Robinson & Cole LLP.

Skillets is represented by Timothy W. Burns and Brian P. Cawley of Burns Bowen Bair LLP, Lisa S. Brook and Kyle McNew of MichieHamlett PLLC, Adam J. Levitt and Kenneth Abbarno of DiCello Levitt Gutzler LLC, and W. Mark Lanier of The Lanier Law Firm PC.

Colony is represented by William F. Stewart and Gary W. Berdeen of Stewart Smith Law.

The case is Skillets LLC et al. v. Colony Insurance Co., case number 21-01268, in the U.S. Court of Appeals for the Fourth Circuit.

–Additional reporting by Amy O’Connor. Editing by Roy LeBlanc.

Caribe Restaurant & Nightclub told the Ninth Circuit that a district court erred by determining that it wasn’t owed coverage under its all-risk policy with Topa Insurance Co. Caribe said the club it operates, the La Luz Ultra Lounge in Bonita, endured substantial losses because of government restrictions limiting access to its property.

It said the district failed to recognize that the actual presence of the virus at its establishment made it less functional and diminished the amount of usable space. That constituted physical alteration required for coverage under its policy, Caribe said.

In its brief, Caribe said that the district court “departed from California law by reading the policy not as layperson based on ordinary meanings of the terms as California law requires, but as a lawyer attempting to decipher inapplicable California case law.”

Tim Burns, an attorney for Caribe from Burns Bowen Bair LLP, told Law360 that policyholders whose businesses have been hurt by the pandemic aren’t looking for a windfall — just a regular layperson’s reading of the language in their policies.

“Federal district courts across the country have essentially nullified the consumer protection features of insurance law by scrambling to read abstract case law involving different circumstances into the policies, instead of just reading the policies,” he said.

Describing at times the virus as a “physical force,” Caribe also argued that the temporary loss of functionality of a facility could constitute a direct physical loss. That argument, sometimes referred to as the loss-of-use theory, has been popular among policyholders, including one art gallery that appealed its pandemic coverage suit to the Ninth Circuit in May.

U.S. District Judge Otis D. Wright II, however, said in April that shutdowns ordered by the California and San Diego County governments didn’t cause physical loss.

“While the court is sympathetic that Caribe is suffering economically from the unprecedented COVID-19 pandemic, an economic business impairment does not qualify as a physical loss or damage to the premises,” he said in his decision, dismissing the suit without leave a year after it was filed. He referred to the respiratory illness caused by the virus.

Caribe’s suit was one of six class actions launched by attorneys from DiCello Levitt Gutzler LLC, the Lanier Law Firm PC, Burns Bowen Bair LLP and Daniels & Tredennick. It alleged that Topa, like other insurers, wrongly denied coverage for losses stemming from the pandemic.

In its appeal Thursday, Caribe also asked the Ninth Circuit to certify questions of whether the coronavirus can cause physical loss or damage to the California Supreme Court. It said the court should hear those questions, given the novel issues of law at stake and the absence of relevant California appellate court opinions on the matter.

Caribe is represented by C. Moze Cowper of Cowper Law PC, by Timothy W. Burns of Burns Bowen Bair LLP, by Adam J. Levitt of DiCello Levitt Gutzler LLC, by Douglas Daniels of Daniels & Tredennick and by Harvey G. Brown, Jr. and H. Victor Thomas of the Lanier Law Firm PC.

Topa Insurance Co. is represented by Gordon A. Greenberg, Jason D. Strabo, Margaret H. Warner and Sarah P. Hogarth of McDermott Will & Emery.

The case is Caribe Restaurant & Nightclub Inc. v. Topa Insurance Co., case number 21-55405, in the U.S. Court of Appeals for the Ninth Circuit.

–Additional reporting by Shawn Rice. Editing by Vincent Sherry.

The insurer said a Virginia federal judge correctly ruled that Skillets LLC was not improperly denied coverage for losses from government shutdown orders when its case was dismissed in March, and that despite any “creative” arguments the restaurant might make, it can’t get around the policy’s requirement for physical loss or damage.

Specifically, Colony said U.S. District Judge Henry E. Hudson did not err in finding that any structural changes the Florida-based restaurant made to mitigate the risk of the virus, such as moving tables or putting up barriers, did not constitute a direct physical loss or damage, nor did the virus’ alleged presence on surfaces, according to the brief.

Those claims have also been flatly rejected by Florida courts in more than 30 similar cases, and many others courts around the country, Colony said.

“Such ‘threat, spread, and/or presence of the virus’ allegations do not implicate coverage, as there is no actual physical, property damage involved,” the insurer told the appellate court.

Skillets’ counsel Timothy W. Burns of Burns Bowen Bair LLP told Law360 on Wednesday that there is no authority on how a Florida appellate court will rule on COVID-19 coverage cases because none has yet done so.

“Even though not a single Florida appellate court has ruled against coverage for COVID-19, Colony Insurance Company’s brief maintains that Florida case law favors them,” Burns said.

The Eleventh Circuit is currently considering whether to uphold the dismissal of a Florida steakhouse’s COVID-19 suit. Rococo Steak LLC appealed its case in May, claiming it suffered physical loss or damage to its property from the virus and government closure orders.

Burns added that he is hopeful the Fourth Circuit will do what he suspects very few trial court judges have done and “read every word of one of these insurance policies before making pronouncements about what an isolated term means.”

“After reading one of these confused monstrosities, word for word, a court is likely to approach these questions with a great deal of humility and may even do what the law commands — give undefined terms the meaning that an ordinary layperson would give to them,” he said.

Skillets, which operates nine restaurants in southwest Florida with Good Breakfast LLC, sued Colony last year in a proposed class action, claiming the insurer wrongfully denied it coverage for pandemic-related losses after it was forced to temporarily stop in-person dining.

In its appeal of Judge Hudson’s ruling to the Fourth Circuit in June, the restaurant argued its coverage was triggered by the loss of use and diminishment of its properties because the virus structurally altered its restaurants’ air and surfaces.

Colony said in its response that Skillets has failed to cite any Florida cases addressing the COVID-19 coverage issue and has instead asked the court to follow “outlier” cases that do not involve virus claims or have different policy language.

“Courts in Florida, and with very few exceptions, courts across the entire United States, have recognized that business closures associated with COVID-19 government shutdown orders do not constitute business interruption caused by ‘direct physical loss of or damage to” property,” Colony said.

And, the insurer argued, Judge Hanson had appropriately agreed with those decisions.

Colony further noted that a sister appellate court, the Eighth Circuit, weighed in for the first time earlier this month that “there must be some physicality to the loss or damage of property — e.g., a physical alteration, physical contamination or physical destruction,” for coverage to be triggered.

The Fourth Circuit has yet to rule on another COVID-19 business interruption case dismissal by an art gallery against Cincinnati Insurance Co. Uncork & Create was the first business to appeal its case to the appellate court in May, claiming a West Virginia federal court wrongly asked it to show its employees had been infected by the virus and had caused physical loss.

Counsel for Colony declined to comment.

The Skillets Restaurants are represented by Timothy W. Burns and Brian P. Cawley of Burns Bowen Bair LLP, Lisa S. Brook and Kyle McNew of MichieHamlett PLLC, Adam J. Levitt and Kenneth Abbarno of DiCello Levitt Gutzler LLC, and W. Mark Lanier of The Lanier Law Firm PC.

Colony is represented by William F. Stewart and Gary W. Berdeen of Stewart Smith Law.

The case is Skillets LLC et al. v. Colony Insurance Co., case number 21-01268, in the U.S. Court of Appeals for the Fourth Circuit.

–Additional reporting by Shawn Rice, Hailey Konnath, Daphne Zhang and Joyce Hanson. Editing by Haylee Pearl.

In each case, the suits had previously been dismissed, but the dentist and restaurant group were allowed to amend their arguments to provide more information about how the virus may have caused physical damage.

However, U.S. District Judge Sidney A. Fitzwater was not persuaded, dismissing each case again without the option to amend after finding that the businesses hadn’t sufficiently shown they were owed insurance coverage.

In his dismissal of Dr. Christie Jo Berkseth-Rojas’s proposed class action against Aspen American Insurance Co., the judge said he agreed with courts around the country that have concluded that COVID-19 damages people, not property.

Judge Fitzwater also wasn’t persuaded by efforts to compare damage from COVID-19 to damage from asbestos or smoke, as he did when first tossing her case.

While he said asbestos and smoke could cause covered property damage, that doesn’t mean “that any contamination by any deadly or harmful agent would necessarily constitute property damage under Minnesota law.”

Unlike those materials, Judge Fitzwater said a virus like COVID-19 “can be cleaned and disinfected from surfaces.”

Tim Burns, an attorney with Burns Bowen Bair LLP who represents Berkseth-Rojas, said the judge should have let a jury decide whether COVID-19 causes damage.

Despite pointing to asbestos and smoke contamination as covered damage in his previous dismissal order, Burns told Law360 in an email, “now, the court has decided that COVID-19 is just not harmful enough for this rule to apply. Really? More dead from COVID-19 than all our country’s wars combined, but somehow COVID-19 doesn’t even rise to the level of smoke?”

Burns acknowledged the overwhelming success insurers have had defeating COVID-19 coverage suits, but said that may be more a result of federal judges and clerks being “good at divining nuanced distinctions to ordinary words,” he wrote.

Instead, judges should read insurance policies “like ordinary lay people would,” he wrote.

“I think the win-loss record would be much different if every decision maker were forced to read these insurance policies word for word,” Burns wrote.

Also Tuesday, Judge Fitzwater dismissed Vandelay Hospitality Group’s suit against Cincinnati Insurance Co. over coverage for its two Hudson House restaurants and its Drake’s Hollywood steakhouse in Dallas County, Texas.

“Even if Vandelay has sufficiently alleged that COVID-19 was present in its restaurants, it has not adequately alleged that COVID-19 caused physical damage or loss,” the judge wrote. “Vandelay repeatedly makes the conclusory assertion that it suffered physical loss and damage. But it fails to specify what damage or loss was caused, aside from the presence of COVID-19 on the property.”

While the restaurant group argued that at least one of its staffers contracted COVID-19 at one of the restaurants, Judge Fitzwater said that was not enough to show that the virus caused physical loss or damage.

“Moreover, as Cincinnati notes and Vandelay acknowledges, COVID-19 can be removed from surfaces by routine cleaning,” the judge wrote. “Vandelay has not alleged anything about COVID-19 itself that has threatened the physical structures of its restaurants.”

A spokesperson for Cincinnati said the company “appreciate[s] the court’s decision that the coronavirus does not constitute a direct physical loss — a prerequisite for coverage — because it does not physically alter property.”

“We recognize the challenges facing many small businesses,” the emailed statement said. “We have been, and continue to be, committed to doing our part to support the families and businesses in our agents’ communities, including helping them to proactively manage risks and promptly paying covered claims.”

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

Vandelay is represented by Jason H. Friedman and Kaitlyn M. Coker of Friedman & Feiger LLP and Richard D. Faulkner.

Cincinnati is represented by Daniel G. Litchfield, S. Jan Hueber and Mahan V. Wright of Litchfield Cavo LLP.

Berkseth-Rojas is represented by Timothy W. Burns, Jeff J. Bowen, Jesse J. Bair and Freya K. Bowen of Burns Bowen Bair LLP, by W. Mark Lanier, Ralph D. McBride and Alex J. Brown of The Lanier Law Firm PC, by Adam J. Levitt, Mark A. DiCello, Kenneth P. Abbarno and Mark Abramowitz of DiCello Levitt Gutzler LLC, and by Douglas Daniels of Daniels & Tredennick.

Aspen is represented by Yvette Ostolaza, Yolanda C. Garcia and Mason Parham of Sidley Austin LLP.

The cases are Vandelay Hospitality Group v. The Cincinnati Insurance Co. et al., case number 3:20-cv-01348, and Berkseth-Rojas DDS v. Aspen American Insurance Co., case number 3:20-cv-00948, each in the U.S. District Court for the Northern District of Texas.

Additional reporting by Daphne Zhang and Mike Curley. Editing by Vincent Sherry.