The COVID-19 pandemic has brought about myriad issues including whether there is insurance coverage for losses allegedly caused by the virus and its collateral effects. In the United States, insurance companies have been largely successful in avoiding coverage in the majority of disputes over whether commercial property policies provide coverage under business income and extra expense provisions for COVID-19 losses. That is because most commercial property policies require direct physical loss or damage to property for coverage to apply.
To avoid the issue of alleging and proving direct physical loss, one insured took a different tactic. It argued that it was being overcharged its insurance premium because its exposure to loss was much lower due to COVID-19. An interesting and novel approach.
I recently posted about the Ninth Circuit’s decision compelling arbitration under the New York Convention after holding that the McCarran-Ferguson Act did not reverse preempt the Convention. Two months earlier, the federal district court in Puerto Rico reached the same conclusion.
It was bound to happen sooner or later. Finally, an appellate court has weighed in on a COVID-19 property damage coverage dispute. This first appellate decision goes into the insurer win column. So what does it mean for future cases?
When bringing a lawsuit there is often strategy to the venue chosen. This is especially true in insurance coverage cases where the outcome can vary by jurisdiction. Another consideration is whether the disputed contract, like an insurance contract, has a forum selection clause, which dictates the venue for the dispute. In a recent case, a court addressed both these issues in deciding a motion to dismiss. The case is a COVID-19 business interruption coverage dispute.
There is no question that the COVID-19 restrictions imposed by local and state governments have had an unintentional but devastating effect on businesses both large, medium and especially small. Restaurants, movie theaters, live entertainment, sports. gyms, salons and many other businesses have closed because of the lack of business. While many of these businesses purchased insurance with coverages for business income and extra expense, the lack of direct physical loss of or damage to property has meant that these policies, for the most part, do not cover the loss of business caused by the government shut-down orders.
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.
Rescission, as we all know, is one of those last-resort legal remedies that is rarely granted. In the insurance world, it is especially difficult for an insurance company to rescind an insurance policy after it is issued to the policyholder.
Where, however, the policyholder misrepresents the risk or itself or some other critical element that goes to the underwriting decision, the remedy of rescission may be available to the insurance company to avoid any obligation to the policyholder. For example, if in the insurance application the policyholder or its agent misrepresents that the insured building has a working fire sprinkler system, the insurance company may have a good case to rescind the policy.
What happens if the insurance company finds out about the misrepresentation, but continues to accept the policyholder’s premium payments? That was one of the issues addressed in a recent New York appellate case.
It’s been since September that I have blogged about business income and extra expense and civil authority order insurance coverage for COVID-19 closures and the multiple court cases addressing motions to dismiss. That’s because the cases have been coming down by the dozen, mostly, but not always, on the side of the insurance carrier.
In one of the recent cases, another motion to dismiss the complaint granted with prejudice in favor of the insurer, the court’s analysis was extremely thorough and persuasive. But what struck me most was the court’s commentary on the differences chosen by policyholder counsel in articulating the allegations in the complaint. Those differences are obvious and, although I have not done a statistical analysis, it appears those differences often account for the reasons why some courts have not dismissed these COVID-19 cases. What do you think?
Under New York law, where an insurance policy provides coverage for physical loss or damage of property caused by enumerated causes of loss or perils, the policyholder must establish that the loss was proximately caused by one of the enumerated causes of loss or perils. Often the question is what determines the proximate cause of the loss and how far back should the inquiry into the proximate cause go. In a recent motion court decision, a New York trial-level court discussed the limits of the proximate cause inquiry in a complicated case of confiscation of a leased aircraft by a foreign government.
As the COVID-19 business interruption cases are decided, many are keeping score. So far, the tally is in favor of the insurance industry, with a number of cases being dismissed for lack of direct physical loss of or damage to covered property by a covered peril.
Most of the cases filed seeking coverage have been met with motions to dismiss by the insurance company. As many of you know, a motion dismiss seeks to throw the case out of court because, on its face, the complaint does not state a cause or action. Basically, the court is saying that the allegations of the complaint, even if true, cannot as a matter of law, lead to coverage. Some courts allow the policyholder to file an amended complaint and some do not. It depends on the specific facts and allegations.
But not all courts have granted the insurance companies’ motions to dismiss. In a recent case, a Missouri federal court denied the motion. In this blog post I examine why.