As the Fifth Circuit reminded us in a December 21 deUnder Pressure: Primary Insurer Must Reimburse Excess Insurer after Failing to Settle Case in Texascision, primary insurers can find themselves in excess insurers’ shoes if they reject settlement demands within their policy limits. In American Guaranty & Liability Insurance Co. v. ACE American Insurance Co., the Fifth Circuit upheld a lower court ruling requiring a primary insurer that rejected a $2 million policy-limits demand to pay the entire judgment because “a prudent insurer would have accepted” the settlement demand.

Before trial, the primary insurer rejected a $2 million policy-limits demand that would have insulated the excess insurer from liability. During jury deliberations, the primary insurer rejected another $2 million policy-limits demand after two adverse evidentiary rulings “aggravated [the insured’s] greatest known weaknesses in this case.” The primary insurer did so even though its own case manager recognized the possibility of an excess verdict due to the adverse evidentiary rulings. The jury rendered a verdict of $40 million, which the trial court reduced to $28 million due to the decedent’s comparative negligence. Plaintiffs settled with the insured for $10 million – $8 million more than the plaintiffs had repeatedly sought through their policy-limits demands.

The court emphasized that under these circumstances, the primary insurer should have realized the probability of an excess judgment “had materially worsened.” Based on the trial’s progression, a prudent insurer would have accepted the offer, and failure to do so breached the Stowers duty-to-settle standard in Texas. Stowers requires an insurer “to exercise ordinary care in the settlement of claims to protect its insureds against judgments in excess of policy limits.” The court held that the third $2 million settlement demand indisputably triggered a Stowers duty.

This decision reminds us that excess insurers can pressure reluctant primary insurers to accept policy-limits demands. Policyholders and their excess insurers can point to this detailed discussion of the underlying facts and the reasoning that led to the Fifth Circuit’s decision to support policy-limits demands. If the primary insurer rejects a policy-limits demand, the excess insurer that contributes to the settlement can – and likely will – seek recovery from the primary insurer. And if the excess insurer refuses to contribute to the settlement, the insured can – and likely will – seek recovery from the primary insurer along with exemplary damages for the primary insurers’ bad-faith refusal to settle. Policyholders and their excess insurers should invoke Stowers and similar duty-to-settle standards in other states to encourage primary insurers to satisfy their settlement obligations. In doing so, they can point to this example of insurer conduct that at least two courts found wanting.

Policyholders Should Reject Insurers’ Misleading Narrative that Property Policies Do Not Cover COVID-19 Business LossesNotwithstanding insurers’ transparent attempts to convince you otherwise, policyholders may very well have coverage for business interruption losses from COVID-19 under their property policies. Since the start of the pandemic, insurers have tried to weave a narrative that policyholders cannot win coverage suits for business-interruption losses resulting from the pandemic. The opinions to date tell a much different story. While some courts have rejected COVID-19 coverage claims, numerous courts have ruled in favor of policyholders or allowed policyholders to file amended complaints. Court decisions have been either pro-policyholder, pro-insurer, or mixed outcomes. In many of the mixed outcome decisions, courts have granted insurers’ motions to dismiss but have allowed policyholders to amend their complaints. Subsequent posts will further sort the cases based on the presence or absence of virus exclusions and will monitor those cases in which insureds filed amended complaints.

COVID-19 Coverage Decisions for Business-Interruption Losses:

1. Pro-Policyholder Decisions (insurers’ motions denied)

  • Studio 417, Inc. v. Cincinnati Ins. Co., No. 20-cv-03127 (W.D. MO Aug. 12, 2020): “Even absent a physical alteration, a physical loss may occur when the property in uninhabitable or unusable for its intended purpose.”
  • C. Hopps, Ltd. v. Cincinnati Ins. Co., No. 20-cv-00437 (W.D. MO Aug. 12, 2020): Decided along with Studio 417.
  • Optical Services USA/JC1 v. Franklin Mut. Ins. Co., No. BER-L-3681-20 (N.J. Super. Ct. Aug. 13, 2020): Motion to dismiss denied because there was a dangerous condition on the property.
  • Ridley Park Fitness, LLC v. Philadelphia Indem. Ins. Co., No. 200501093 (Pa. Ct. Common Pleas Aug. 31, 2020): “Taking the factual allegations made in plaintiff’s complaint as true . . . Plaintiff has successfully pled to survive this stage of the proceeding.”
  • Blue Springs Dental Care, LLC v. Owners Ins. Co., No. 20-cv-00383 (W.D. MO Sept. 21, 2020): Plaintiffs plausibly allege that COVID-19 physically attached itself to their dental clinics, thereby depriving them of the possession and use of those insured properties.
  • Johnston Jewelers Inc. v. Jewelers Mut. Ins. Co., No. 20-002221 (Fla. Cir. Ct. Sept. 22, 2020): No opinion.
  • Urogynecology Spec. of Fla., LLC v. Sentinel Ins. Co., No. 6:20-cv-001174 (M.D. Fla. Sept. 24, 2020): Several arguably ambiguous aspects of the policy make determination of coverage inappropriate at this stage.
  • Francois, Inc. v. Cincinnati Ins. Co., No. 20CV20141 (Ohio Ct. Comm. Pleas Sept. 29, 2020): Same basis as Studio 417 and C. Hopps.
  • Best Rest. Motel Inc. v. Sequoia Ins. Co., No. 37-2020-00015679 (Cal. Super. Ct. Sept. 30, 2020): Questions exist outside the complaint as to whether the policy provides insurance coverage as a result of the coronavirus.
  • Lombardi’s, Inc. v. Indem. Ins. Co. of N.A., No. DC-20-05751-A (Tex. Dist. Ct. Oct. 15, 2020): No opinion.
  • Chapparells Inc. v. Cincinnati Ins. Co., No. CV-2020-06-1704 (Ohio Ct. Comm. Pleas Oct. 21, 2020): Motion to dismiss denied because the court was not convinced “beyond doubt” that the insured could prove no set of facts entitling it to recovery.
  • Taps & Bourbon on Terr., LLC. v. Underwriters at Lloyds London, No. 375 (Penn. Ct. Comm. Pleas Oct. 26, 2020): “At this very early stage, it would be premature for this court to resolve the factual determinations put forth by defendant to dismiss plaintiff’s claims.”
  • Cajun Conti LLC v. Certain Underwriters at Lloyds London, No. 2020-02558 (La. Civ. Dist. Ct. Nov. 4, 2020): Motion for summary judgment denied because questions of fact require trial.
  • Independent Barbershop, LLC v. Twin City Fire Ins. Co., A-20-CV-00555 (W.D. Tex. Nov. 4, 2020): Court denied motion to dismiss in part because the policy included a separate section that allows for up to 30 days of coverage for BI losses from a virus.
  • Hill & Stout PLLC v. Mutual of Enumclaw Ins. Co., 20-2-07925-1 (Wash. Super. Ct. Nov. 13, 2020): Court denied motion to dismiss.
  • Dino Palmieri Salons, Inc. v. State Auto. Mut. Ins. Co., No. CV-20-932117 (Oh. Ct. Common Pleas Nov. 17, 2020): Court denied motion to dismiss.

2. Pro-Insurer Decisions (insurers’ motions granted with prejudice)

  • Gavrilides Mgmt. Co. v. Michigan Ins. Co., 20-258 (Mich. Cir. Ct. July 1, 2020): Coverage requires tangible alteration to the physical integrity of the property.
  • The Inns By the Sea v. Cal. Mut. Ins. Co., No. 20CV00127 (Cal. Super. Ct. Aug. 6, 2020): Allegations failed to state sufficient facts.
  • Rose’s 1, LLC v. Erie Ins. Exch., 2020 CA 002424 B (D.C. Super. Ct. Aug. 6, 2020): “[D]irect physical loss” implies some type of physical change to property.
  • Diesel Barbershop, LLC v. State Farm Lloyd’s, No. 5:20-CV-461 (W.D. Tex. Aug. 13, 2020): Line of cases requiring tangible injury to property more persuasive.
  • Mauricio Martinez, DMD, P.A. Allied Ins. Co. of Am., No. 2:20-cv-00401 (M.D. Fla. Sept. 2, 2020): Decision based exclusively on virus exclusion.
  • Turek Enterprises, Inc. v. State Farm Mut. Auto Ins. Co., No. 1:20-cv-11655 (E.D. Mich. Sept. 3, 2020): Insured must demonstrate tangible damage to property.
  • Social Life Magazine v. Sentinel Ins. Co., No. 20 Civ 3311 (S.D.N.Y. May 14, 2020): The virus “damages lungs. It doesn’t damage printing presses.”
  • Infinity Exs., Inc. v. Certain Underwriters of Lloyds London, No. 8:20-cv-01605 (M.D. Fla. Sept. 28, 2020): Requiring actual, concrete damage for coverage.
  • Oral Surgeons, PC v. Cincinnati Ins. Co., 4:20-cv-00222 (S.D. Iowa Sept. 29, 2020): Virus-related closures do not amount to direct physical loss.
  • It’s Nice, Inc. v. State Farm Fire & Cas. Co., 2020L00054 (IL. Cir. Ct. Sept. 29, 2020): Direct physical loss requires actual physical damage.
  • Wilson v. Hartford Cas. Co., No. 2:20-cv-03384 (E.D. Pa. Sept. 30, 2020): The virus exclusion bars coverage.
  • Pappy’s Barbershops, Inc. v. Farmer’s Grp., Inc., No. 3:20-cv-00907 (S.D. Cal. Oct. 1, 2020): “The presence of the virus at premises or elsewhere does not constitute direct physical loss.”
  • Mark’s Engine Co., No. 28 Rest., LLC v. Travelers Indem. Co., No. 2:20-cv-04423 (C.D. Cal. Oct. 2, 2020): Coverage requires distinct, demonstratable, physical alteration.
  • Seifert v. IMT Ins. Co., No. 0:20-cv-01102 (D. MN. Oct. 16, 2020): Actual physical contamination is required; simply claiming “loss of use” is insufficient.
  • Travelers Cas. Ins. Co. of Am. v. Geragos and Geragos, No. 2:20-cv-03619 (C.D. Cal. Oct. 19, 2020): Coverage requires distinct, demonstratable physical alteration, not just detrimental economic impact.
  • Hillcrest Optical, Inc. v. Continental Cas. Co., 1:20-cv-00275 (S.D. AL Oct. 21, 2020):  Coverage requires tangible alteration/disturbance to property.
  • Vizza Wash. LP v. Nationwide Mut. Ins. Co., 5:20-cv-00680 (W.D. Tex. Oct. 26, 2020): Virus exclusion precludes coverage.
  • Raymond N. Nahmad, DDS PA v. Hartford Cas. Ins. Co., 1:20-cv-22833 (S.D. Fla. Nov. 2, 2020): Economic losses caused by COVID-19 closures do not constitute direct physical loss.
  • MAC Prop. Grp. LLC v. Selective Fire & Cas. Ins. Co., No. L-2629-20 (N.J. Super. Ct. Nov. 5, 2020): Virus exclusion precludes coverage.
  • Musso & Frank Grill Co. v. Mitsui Sumitomo Ins. Co., No. 20STCV16681 (Cal. Super. Ct. Nov. 9, 2020): Insured failed to allege facts to support physical alteration of property.
  • Goodwill Industries of Central Oklahoma v. Phila. Indem. Ins. Co., No. 5:20-cv-00511 (W.D. Ok. Nov. 9, 2020): Direct physical loss requires a showing of tangible damage and the virus exclusion also bars coverage.
  • Dime Fitness LLC v. Markel Ins. Co., 20-ca-5504 (Fla. Cir. Ct. Nov. 10, 2020): COVID-19 caused purely economic losses, and policy requires physical alteration to property.
  • DAB Dental PLLC v. Main Street Am. Prot. Ins. Co., No. 20-CA-5504 (Fla. Cir. Ct. Nov. 10, 2020): Mere presence of COVID on premises does not constitute direct physical loss.
  • Barroso, Inc. v. Twin City Fire Ins. Co., No. 1:20-cv-00632 (E.D. Va. Nov. 10, 2020): No opinion.
  • Long Affair Carpet & Rug Inc. v. Liberty Mut. Ins. Co., No. 8:20-cv-01713 (Nov. 12, 2020): Physical loss requires distinct, demonstrable, physical alteration; losses from inability to use property do not amount to direct physical loss.
  • Chattanooga Prof. Baseball, LLC v. National Cas. Co., No. 2:20-cv-01312 (D. Ariz. Nov. 13, 2020): Virus exclusion precludes coverage; court rejected regulatory estoppel argument.
  • Border Chicken AZ LLC v. Nationwide Mut. Ins. Co., CV-20-00785 (D. Ariz. Nov. 20, 2020): Virus exclusion precludes coverage.
  • Mattdogg Inc. v. Philadelphia Indem. Ins. Co., MER-L-820-20 (N.J. Super. Ct. Nov. 17, 2020): Insurer’s motion to dismiss granted with prejudice.
  • T&E Chicago LLC. v. Cincinnati Ins. Co., No. 1:20-cv-04001 (N.D. Ill. Nov. 19, 2020): Insurer’s motion to dismiss granted with prejudice.
  • Natty Greene’s Brewing Co., LLC v. Travelers Cas. Ins. Co., 1:20-cv-00437 (M.D.N.C. Nov. 30, 2020): Insurer’s motion to dismiss granted with prejudice.
  • Whiskey River on Vintage, Inc. v. Illinois Cas. Co., No. 4:20-cv-185 (S.D. Iowa Nov. 30, 2020): Insurer’s motion for judgment on the pleadings granted because policy included virus exclusion and insureds admitted they had no knowledge of COVID-19 on their premises nor were they aware of any customers or employees contracting the virus.
  • Toppers Salon & Health Spa, Inc. Travelers Prop. Cas. Co. of Am., No. 2:20-cv-03342 Nov. 30, 2020): Insurer’s motion to dismiss granted with prejudice.

3. Mixed Outcome (suits dismissed without prejudice to refile)

  • Malaube, LLC v. Greenwich Ins. Co., No. 1:20-cv-22615 (S.D. Fla. Aug. 26, 2020): Plaintiff did not allege physical harm.
  • 10E, LLC v. Travelers Indem. Co., No. 1:20-cv-04418 (C.D. Cal. Aug. 31, 2020): Property must undergo a distinct, demonstrable, physical alteration.
  • Plan Check Downtown Ill. LLC v. AmGuard Ins. Co., No. 2:20-cv-06954 (C.D. Cal. Sept. 10, 2020): California law requires tangible alteration, whether “loss” or “damage.”
  • Mortar & Pestle Corp. v. Atain Spec. Ins. Co., No. 3:20-cv-03461 (N.D. Cal. Sept. 11, 2020): Amended complaint filed 10.23.2020.
  • Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., No. 4:20-cv-03213 (N.D. Cal. Sept. 14, 2020): The words in the policy suggest physical in nature, and the insured declined to amend, so judgment was entered dismissing action with prejudice.
  • Sandy Point Dental, PC v. Cincinnati Ins. Co., No. 20 CV 2160 (N.D. Ill. Sept. 21, 2020):  Coverage requires actual, demonstrable harm of some form to premises, rather than forced closures for reasons extraneous to premises.
  • Franklin EWC, Inc. v. Hartford Fin. Servs. Grp., No. 3:20-cv-04434 (N.D. Cal. Sept. 22, 2020): Virus exclusion precludes coverage.
  • Henry’s La. Grill v. Allied Ins. Co., No. 1:20-cv-02939 (N.D. Ga. Oct. 6, 2020): Direct physical loss requires physical change to the premises.
  • Vandelay Hospitality Grp. LP v. Cincinnati Ins. Co., No. 3:20-cv-01348 (N.D. Tex. Oct. 7, 2020): Second amended complaint filed 11.05.2020.
  • Horizon Dive Adventures, Inc. v. Tokio Marine Spec. Ins. Co., No. 20-CA-159 (Fla. Cir. Ct. Oct. 8, 2020): Direct physical loss requires that damage be “actual.”
  • Mace Marine, Inc. v. Tokio Marine Spec. Ins. Co., No. 20-CA-120 (Fla. Cir. Ct. Oct. 8, 2020): Same as Horizon Dive Adventures.
  • O’Brien Sales & Mktg, Inc. v. Transp. Ins. Co., No. 3:20-cv-02951 (N.D. Cal. Oct. 9, 2020): Second amended complaint filed 11.02.2020.
  • Harvest Moon Distributors, LLC v. Southern-Owners Ins. Co., No. 6:20-cv-01026 (M.D. Fla. Oct. 9, 2020): Insured failed to allege covered cause of loss.
  • Founder Inst. Inc. v. Hartford Fire Ins. Co., No. 3:20-cv-04466 (N.D. Cal. Oct. 22, 2020): Virus exclusion precludes start-up company’s coverage claim.
  • Boxed Foods Co., LLC v. Cal. Capital Ins. Co., No. 3:20-cv-04571 (N.D. Cal. Oct. 26, 2020): Virus exclusion precludes coverage.
  • West Coast Hotel Management, LLC v. Berkshire Hathaway Guard Ins. Cos., No. 2:20-cv-05663 (C.D. Cal. Oct. 27, 2020): Direct physical loss plainly requires loss or damage that is physical in nature.
  • Uncork and Create LLC v. Cincinnati Ins. Co., 2:20-cv-00401 (S.D. W. Va. Nov. 2, 2020): The property was not physically damaged or rendered unusable or uninhabitable by COVID-19.
  • Real Hospitality LLC v. Travelers Ins. Co. of Am., 2:20-cv-00087 (E.D. Miss. Nov. 4, 2020): Complaint fails to allege property damaged or that plaintiff was permanently dispossessed of property.
  • N&S Rest, LLC v. Cumberland Mut. Fire Ins. Co., No. 1:20-cv-05289 (D.N.J. Nov. 5, 2020): Virus exclusion precludes coverage.
  • Brian Handel DMD, PC v. Allstate Ins. Co., No. 2:20-cv-03198 (E.D. Pa. Nov. 6, 2020):  “In cases where sources unnoticeable to the naked eye have reduced the use of property to a substantial degree, direct physical loss means the functionality of the property was nearly eliminated or destroyed or the property was made useless or uninhabitable.”
  • Water Sports Kauai, Inc. v. Fireman’s Fund Ins. Co., No. 3:20-cv-03750 (N.D. Cal. Nov. 9, 2020): Insured fails to allege presence of virus on properties or imminent threat of contamination to properties.
  • Graspa Consulting, Inc. v. United National Ins. Co., No. 1:20-cv-23245 (S.D. Fla. Nov. 17, 2020): Insurer’s motion to dismiss granted without prejudice to refile.
  • Selane Prods., Inc. v. Continental Cas. Co., 2:20-cv-07834 (C.D. Cal. Nov. 24, 2020): Insurer’s motion to dismiss granted without prejudice to refile.
  • AFM Mattress Co. LLC v. Motorists Comm. Mut. Ins., No. 1:20-cv-03556 (N.D. Ill. Nov. 25, 2020): Insurer’s motion to dismiss granted without prejudice to refile.
  • BBMS, LLC v. Continental Cas. Co., No. 4:20-cv-00353 (W.D. Mo. Nov. 30, 2020):  Insurer’s motion to dismiss granted without prejudice to refile.

One Day, Two Different Decisions: Mississippi and Texas Federal Courts Issue Opinions in COVID-19 Insurance CasesConfirming the growing split of decisions among federal courts addressing COVID-19 insurance issues, two district courts in the Fifth Circuit differed in their interpretation of virus exclusions, with one denying coverage and the other permitting the policyholder’s claim to proceed.

On November 4, a Mississippi federal district court dismissed a restaurant’s complaint for business interruption losses from COVID-19 shutdown orders because the plaintiff did not allege tangible damage or “permanent dispossession” of use of the property (see Real Hospitality, LLC v. Travelers Cas. Ins. Co. of Am.).The court emphasized that the policy insures the property itself, not the restaurant’s operations.

The court agreed that the words “loss” and “damage” in the coverage grant for “direct physical loss of or damage to” property must be given “separate effect,” but concluded that only a permanent dispossession of the property, such as a theft, would trigger coverage. The court reasoned that this interpretation squared with the definition of the “Period of Restoration,” which ended when the property is “repaired, rebuilt or replaced” or when “business resumed at a new permanent location.” The court distinguished cases involving odors, contamination, or imminent threats as “tantamount to physical loss or damage.” The court also held that the virus exclusion would eliminate any coverage otherwise available for coronavirus-related losses.

On the same day, a federal district court in Texas upheld a barbershop’s COVID-19 claim despite a virus exclusion  (see Independence Barbershop, et al. v. Twin City Fire Ins. Co.). Although the virus exclusion barred the policyholder’s broader claims, the court denied the insurer’s motion to dismiss the claim under an endorsement that expressly provided virus coverage. This decision reminds policyholders that virus exclusions do not bar all coverage, particularly endorsements that separately provide virus coverage.

These decisions also show that courts continue to focus on specific policy language and allegations in deciding early COVID-19 insurance cases. The factual details matter. And so do the words of the policy. Some policies do not expressly require proof of “direct physical loss of or damage to” your property to trigger business income coverage. Others incorporate forms and endorsements that may expressly grant or exclude loss caused by virus. Each case and policy require detailed analysis. If you have a business loss or pending claim and have not consulted an insurance attorney to address these issues, consider doing so.