Judge Stephen Bough and the federal court in the Western District of Missouri entered an important order yesterday in a case brought by Studio 417, a hair salon, and several restaurants against Cincinnati Insurance Company. The order denied the insurer’s motion to dismiss, finding the plaintiffs’ COVID-19 coverage allegations were sufficient to move forward. This is an early ruling in the case and subject to change after discovery, but this is a significant step for policyholders pursuing property coverage arising from COVID-19. Most significantly, the court found adequate allegations of “direct physical loss” and noted that the policy offered coverage for “accidental physical loss or accidental physical damage.” Holding that it must give meaning to all terms in the policy, the court found that if “physical loss” was interpreted to mean “damage,” then one of those terms would be meaningless. In other words, the loss of access to or use of the property should be enough to trigger coverage under a standard property policy. It will be interesting to follow this case and to see how it impacts other similar motions pending in courts around the country. Notably, we are aware of at least three decisions on this issue that have favored the insurers. The Studio 417 case appears to be the first win for policyholders and confirms the uncertainty to be resolved over the coming months and years. If your business has a potential COVID-19 claim, you should talk to your insurance professional or a coverage attorney to make sure you’ve adequately considered and addressed your policy’s notice requirements.
June 1 marked the start of hurricane season, and according to the National Oceanic and Atmospheric Administration (NOAA), the Atlantic hurricane season will be a busy one. NOAA predicts a 60% chance of an above-normal season, a 30% chance of a near-normal season and only a 10% chance of a below-normal season. Since June 1, there have already been five named storms in the Atlantic; Cristobal was the earliest “C” storm on record and its remnants tracked to Wisconsin.
Flooding is the most common and costly natural disaster in the United States. The combined cost of the Missouri, Arkansas, and Mississippi river flooding ($20 billion) alone was almost half of the total cost ($45 billion) of weather and climate disaster events in the United States in 2019. But hurricanes and other severe weather events are not the only sources of flooding. On May 20, 2020, the Edenville and Samford dams in Midland County, Michigan, were breached after heavy rains described as a “once in 500-year” event. The dam disaster impacted over 20,000 residential properties leaving many property and business owners facing vast repair costs without the coverage of flood insurance.
Natural disasters like these and the hurricane season underscore the importance of flood insurance. State agencies and news outlets throughout the country are reminding people of the many reasons to obtain flood insurance and urging property owners to purchase flood insurance sooner rather than later. One of those many reasons, which was evident in the Michigan dam disaster, is that more than 20% of flood claims come from properties outside the high-risk flood zone. Homeowners and renters insurance exclude coverage for flood damage, and the damage from just one inch of water can cost more than $20,000 to remediate.
Flood insurance may be purchased through either an insurance agent or an insurer participating in the National Flood Insurance Program (NFIP). Finally, keep in mind that typically there is a 30-day waiting period from the date of purchase until a flood insurance policy goes into effect, though there are exceptions. So, as hurricane season is already underway, time is of the essence to consider and purchase flood insurance.
The recent procedural ruling by a Pennsylvania federal court highlights another area of uncertainty in the growing wave of insurance litigation related to COVID-19: will these cases proceed in state or federal courts? The U.S. District Court for the Western District of Pennsylvania on its own volition remanded a Pittsburgh restaurant’s lawsuit seeking insurance coverage for business interruption losses stemming from the COVID-19 shutdown. The court questioned but did not determine whether it had diversity jurisdiction over the case, but instead exercised its discretionary authority to decline jurisdiction under the Declaratory Judgment Act, 28 U.S.C. s 2201(a). The court applied a balancing test, but the scale was tipped against federal court jurisdiction due to the novel insurance coverage issues under Pennsylvania law “best reserved for the state court to resolve in the first instance.” The court noted the lack of Pennsylvania caselaw due to the relative recency of the COVID-19 pandemic and concluded that “it is counterproductive for a district court to entertain jurisdiction over a declaratory judgment action that implicated unsettled questions of state law.” Given that insurance claims related to COVID-19 will raise novel issues of state law around the country, other federal courts may follow suit and decline to exercise jurisdiction over such insurance claims.