Insurance carriers have filed over 100 motions to dismiss in the more than 1,000 business interruption (BI) cases already filed that seek coverage for losses from COVID-19. All of these motions to dismiss allege that the insureds have not, under the standards of Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), alleged enough facts to prove damage or structural alteration to their property, which the insurers claim is required under the policies at issue as a prerequisite for BI coverage.
The motions filed by the insurers include several in cases where the insured plainly alleged that COVID-19 caused damage or loss to its property but where the insurer nonetheless insisted that the allegations needed to be more detailed. See, e.g., Actors Playhouse Prods., Inc., v. SCOR SE & General Sec. Indem. Co. of Ariz., Case No. 1:20-cv-22981-MGC (S.D. Fla. Sept. 3, 2020).
Affiliated/Factory Mutual (FM) recently filed a motion to dismiss that plainly shows the insurers’ real goal, namely to waste time on motions to dismiss that will eventually either be denied or hopefully reversed by courts of appeals. Out West Restaurant Group v. Affiliated FM Ins. Co., Case No. 3:20-cv-06786-TSH (N.D. Cal. Oct. 16, 2020) (Defendant Affiliated FM Insurance Company Notice of Motion and Motion to Dismiss and Motion to Strike; Memorandum of Points and Authorities in Support of its Motion to Dismiss and/or Motion to Strike). After the initial flurry of grants of motions to dismiss, which occurred mainly because plaintiffs mistakenly did not plead property loss or damage or because the courts required unusually detailed allegations of property loss or damage, numerous courts are now finding sufficient allegations of property damage or loss in complaints, and they are consequently holding that the issue of whether there actually was property damage or loss is one of fact to be resolved in discovery. Indeed, one court recently held on summary judgment that physical loss means infestation and closure due to COVID-19, using the dictionary definition of “loss.” The court found that, if “damage” means structural alteration, then “loss” cannot also require structural alteration. N. State Deli, LLC v. Cincinnati Ins. Co., Case No. 20-CVS-02569 (N.C. Sup. Ct. Oct. 9, 2020). The policy at issue in this case apparently has no virus exclusion, and the ruling will doubtlessly be appealed; there thus is a long way to go before the courts achieve any certainty on the topic in spite of this trial-court win for the policyholder.
Similarly, in Studio 417, Inc. v. Cincinnati Insurance Co., No. 20-CV-03127-SRB, 2020 WL 4692385 (W.D. Mo. Aug. 12, 2020), the policies at issue were all-risk policies that covered “accidental [direct] physical loss or accidental [direct] physical damage.” The court denied the motion to dismiss because the facts had to be explored in more detail. In Optical Services USA/JC1 v. Franklin Mutual Insurance Co., No. BER-L-3681-20 (N.J. Super. Ct. Aug. 13, 2020), the defendants moved to dismiss and argued that COVID-19-related losses did not qualify as a “direct physical loss.” The Superior Court of New Jersey, however, observed that this “blanket statement [was] unsupported by any common law in the State of New Jersey.” Moreover, because no discovery had been taken at that stage of the litigation, the court explained that the insurer’s motion was “premature at best.” Id. at 14; see also Urogynecology Specialist v. Sentinel Ins. Co., Case No. 6:20-cv-1174-Orl-22EJK, Order at 7 (M.D. Fla. Sept. 24, 2020) (denying defendant insurer’s motion to dismiss because, while some case law supported defendant’s argument, “none of the cases dealt with the unique circumstances of the effect COVID-19 has had on our society—a distinction this Court considers significant”). And in Blue Springs Dental Care, LLC v. Owners Insurance Co., 2020 WL 5637963, at *6 (W.D. Mo. Sept. 21, 2020), the court acknowledged “direct physical loss of” the plaintiffs’ properties when the plaintiffs alleged that the virus was physically present in their dental clinics and thereby deprived them of the use of those clinics.
To create yet another roadblock to paying any claims—including the plainly covered claim of damage under its contamination clause, which expressly covers viruses—FM has now, after previously filing motions based on inadequate allegations, filed a motion based on the Alice-in-Wonderland claim that the complaint contains too much information and is “prolix.” FM even had the chutzpah to simultaneously claim that sections of the complaint do not contain enough detail. Maybe the correct analogy is Goldilocks (too hot followed by too cold, but never just right). After the previous orders by some courts based on inadequate allegations, Outback understandably loaded up its complaint with everything it could find regarding damage at its restaurants.
FM’s motion further proves that it refuses to pay anything that relates to COVID-19 by denying Outback’s claims for damage under the contamination clause because the plaintiff has not provided test results showing a confirmed presence of COVID-19 at each of its properties. Nothing could be plainer, at least at the pleading stage of the case, than the presence of COVID-19 throughout the United States on the date FM filed its motion. The recent decision by the UK’s Financial Conduct Authority (FCA) underscores the reasonableness of proving the presence of COVID-19 by statistical evidence. There are over 8 million confirmed COVID-19 cases in the United States and orders in effect in all 50 states closing or at least reducing patronage at restaurants—those facts, without more, clearly establish the presence of COVID-19 in all restaurants where the general public is or was permitted.
An FM memorandum submitted as evidence in another case, which provides a playbook for FM’s claims personnel to reject all COVID-19-related BI claims, further underscores that FM, which clearly sold coverage for damage from contamination by a pandemic to over two million policy holders, contumaciously refuses to even consider paying claims for COVID-19 without actual tests. See Ex. H to Complaint, Treasure Island, LLC v. Affiliated FM Ins. Co., Case No. 2:20 CV-00965 (D. Nev. May 28, 2020).
So far, insurers are riding their high horse, asserting that they did not intend to cover COVID-19-related BI claims and would go broke if they had to cover them. It is now time for Congress or the state legislatures to step in and force some coverage in the face of this bad-faith conduct by the insurers and provide a funding mechanism either as a straight‑out stimulus or from future premiums. Alternatively, more carrier-specific multi‑district consolidations might reduce the overhead of getting an answer from the courts about basic questions related to such claims. And the FCA clarified two issues that also apply to U.S. cases, namely whether a complete closure is needed to trigger civil authority coverage and whether statistical methods can be used to prove the presence of COVID-19 in a particular area. Pro-insurer law firms are already trying to undercut that decision as applying only to UK policies. But the same issues arise under the contamination policies issued in the United States by FM, Great American, Travelers, and other major carriers. Maybe U.S. courts should apply the principles set forth in the FCA decision to these two issues in the United Sates, rather than permit insurer niggling over what is a closure and whether COVID-19 was present in a facility that was closed because of the pandemic.