Dozens of judges have ruled on cases in which businesses seek coverage for losses from the pandemic, but none have gone so far as to say that something like adding a patio or an air filtration system counts as the type of physical change that would be covered under insurance policies like the one held by the owner of the Panache Coiffure in Santa Monica, California, the insurer argued.

Out of hundreds of decisions on similar matters, no other court has found that modifications in response to the pandemic count as a physical loss or damage, Continental said.

“The few courts that have addressed this novel theory have soundly rejected it,” Continental said.

U.S. District Judge Charles P. Kocoras had ruled on June 1 that Continental would have to face claims by a proposed class led by Panache and Legacy Sports Barbershop in Virginia Beach, Virginia. The judge found that, because the virus prompted the businesses to make changes to their properties for more space, outdoor accommodations and other modifications, those changes are covered by the insurance policies’ physical loss or damage provisions.

The judge noted that he had already considered the issue of what constitutes a physical loss or damage in another case brought by Bradley Hotel Corp., and that he ruled against Bradley at the time because it had only alleged it lost the use of its business, not that anything about the business had otherwise changed.

But Panache had alleged it needed to do the renovations because of the virus, which went beyond just a loss of use, the judge said.

“Thus, we believe that plaintiffs have sufficiently alleged that the properties underwent a ‘distinct, demonstrable, physical alteration’ and therefore suffered ‘physical loss of or damage to’ the properties,” Judge Kocoras wrote in the order.

Legacy kicked off the litigation in July 2020 with a complaint alleging it lost business when it was forced to close for several weeks. When it reopened, it could only bring in half the customers and couldn’t perform some services like beard trimming, according to the suit.

In October, Legacy filed an amended complaint that added Panache, which had added an outdoor patio and installed barriers and sanitation stations to its salon. The two are seeking to represent a class of similar businesses with similar insurance policies, according to the suit.

But Continental argued that a new patio is an improvement and not damage, and that it was a response to government orders, not the virus itself.

“Neither an outdoor patio nor social distancing barriers are encompassed by any reasonable definition or construction of ‘direct physical loss of or damage to’ property,” the insurer wrote in the reconsideration bid, also arguing that Panache claimed in its complaint that the modifications were repairs to the covered damage, not the damage itself.

Among federal rulings on motions to dismiss COVID-19 coverage suits, only about 6% have been denied, according to the University of Pennsylvania’s Covid Coverage Litigation Tracker.

Representatives for Legacy and Panache did not immediately return requests for comment, and their counsel declined to comment.

A Continental spokeswoman said the company was unavailable for comment, and its attorney declined to comment on pending litigation.

The proposed class is represented by Adam J. Levitt, Amy E. Keller, Daniel R. Ferri, Mark Hamill, Laura E. Reasons, Mark A. DiCello, Kenneth P. Abbarno and Mark Abramowitz of DiCello Levitt Gutzler LLC, Mark Lanier, Alex Brown and Skip McBride of The Lanier Law Firm PC, Timothy W. Burns, Jeff J. Bowen, Jesse J. Bair and Freya K. Bowen of Burns Bowen Bair LLP, Douglas Daniels of Daniels & Tredennick and C. Calvin Warriner III of Searcy Denney Scarola Barnhart & Shipley PA.

Continental is represented by Michael L. McCluggage, Brent R. Austin, Caroline P. Malone, John K. Adams and Robert E. Dunn of Eimer Stahl LLP.

The case is Legacy Sports Barbershop LLC et al. v. Continental Casualty Co., case number 1:20-cv-04149, in the U.S. District Court for the Northern District of Illinois.

–Additional reporting by Shawn Rice. Editing by Bruce Goldman.