Broad Policy Endorsement Dooms Motion to Dismiss in COVID-19 Case

COVID-19 business interruption rulings periodically have interesting quirks worth discussing. While the majority of cases are being dismissed at the pleading stage, some are not for various reasons. In a recent Ohio state court case, the motion to dismiss on the pleadings was denied in major part because of an endorsement expanding coverage in a business property policy for a restaurant.

In Sylvester and Sylvester, Inc. v. State Automobile Mutual Insurance Co., No. 2020 CV 00817 (Ct of Comm. Pleas, Stark Co., OH, Jan. 7, 2021), the insurer’s motion for judgment on the pleadings was denied. The restaurant purchased commercial general liability and businessowners special property coverage. The policy had the usual business income and extra expense provisions, including civil authority coverage. It also had an endorsement extending coverage for losses arising from food-borne illnesses:

Business Income – Limited Extension for Food-Borne Illness

Additional Coverages f. Business Income and g. Extra Expense is amended to include coverage for the following Causes of Loss:

1. The suspension of your “operations” at the described premises due to the order of a civil authority; or adverse public communications or media reports, resulting from the actual or alleged:

* * *

b. Exposure of the described premises to a contagious or infectious disease.

In denying the insurer’s motion for judgment on the pleadings, the court noted that neither party nor the court’s own research uncovered a case discussing the meaning of physical loss of or damage to property in the context of this particular endorsement. The court, instead found that the restaurant’s insurance policy provided coverage for the suspension of its operations due to a civil authority order resulting from the actual or alleged exposure of the restaurant to a contagious or infectious disease. The court also found that this provision did not require proof of physical loss of or damage to the restaurant.

The court rejected the insurance company’s argument that the endorsement was limited to food-borne illnesses and held that the plain language of the policy provided coverage for either actual or ‘alleged’ exposure of the premises to a contagious disease. Because the restaurant pled that it was forced to suspend in-person dining due to a civil authority order and that its damages were the result of the “physical spread and/or contamination of COVID-19 at, in and/or around” the restaurant, the court, giving the restaurant all favorable inferences and accepting as true all the allegations, could not conclude that the restaurant could prove no set of facts that would entitle it to relief under the policy.

While the majority of COVID-19 business interruption cases have been dismissed, several that were not dismissed had similar allegations about COVID-19 contamination at the premises, so the denial of the motion for judgment on the pleadings is not shocking. What is different in this case, however, is the way the court gave short shrift to the title and context of the endorsement and focused solely on the words of the endorsement.

The failure to say what you mean and mean what you say in an insurance policy is not new. The ramifications of not using precise language to limit an extension of coverage to the specific target of that coverage — here food-borne illness — can have widespread ramifications as it did in this decision.