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.

 

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Photo of A. Kate Margolis A. Kate Margolis

Kate Margolis provides insurance coverage advice for policyholders. She knows that insurance coverage is essential to the long-term viability of any business. Kate helps policyholders preserve coverage both before and after a claim arises. She advises regarding terms and conditions and potential gaps…

Kate Margolis provides insurance coverage advice for policyholders. She knows that insurance coverage is essential to the long-term viability of any business. Kate helps policyholders preserve coverage both before and after a claim arises. She advises regarding terms and conditions and potential gaps in coverage when clients are evaluating their insurance programs.  For example, cyber insurance has fast become a crucial part of any insurance program. Kate recently co-authored the Guide to Cyber Insurance: Building a Program, Procuring Coverage, Managing Claims and Litigating Disputes, published by RIMS, the Risk Management SocietyTM.

When coverage disputes do arise, Kate is committed to cost-effective and creative solutions to achieve a satisfactory business resolution if possible and unrelenting advocacy when litigation is warranted. Kate has helped clients navigate roadblocks to coverage for nearly 20 years.

Photo of Alex Purvis Alex Purvis

Alex Purvis is a litigator and policyholder coverage lawyer with a unique background, including experience in product liability, construction, and complex commercial litigation. He started his career as a litigation associate handling large-scale insurance coverage and subrogation matters. After joining Bradley in 2005…

Alex Purvis is a litigator and policyholder coverage lawyer with a unique background, including experience in product liability, construction, and complex commercial litigation. He started his career as a litigation associate handling large-scale insurance coverage and subrogation matters. After joining Bradley in 2005, Alex developed a reputation as a leading insurance coverage lawyer for commercial policyholders across the Southeast.