August 2020 Case Notes & Comments

“One always measures friendships by how they show up in bad weather.” ~ Sir Winston Churchill

MESSAGE TO OUR CLIENTS AND PARTNERS: We hope that you and those you care about are safe and well. While COVID-19 continues to impact our industry and daily lives, we are committed to providing you with the same levels of service and experience. We continue to closely monitor the legal implications of COVID-19 and provide insight. We also continue our work in a socially responsible manner, that best supports the well-being of the communities in which we live and work. When the time is right, we very much look forward to seeing you again.

COVID-19 – TEXAS FEDERAL COURT FINDS THAT ALLEGED COVID-19 CLAIMS FAILED TO STATE A COMPENSABLE CAUSE OF ACTION: Insured-Business Owners ran eight barbershops throughout Texas, a type of business deemed “non-exempt” and “non-essential” under the Texas Governor’s COVID-19 orders. Insured procured several property policies that scheduled the various barbershop locations and provided coverage for “accidental direct physical loss to Covered Property." The policies also included an exclusion for fungi, “[v]irus, or bacteria or other microorganism that induces or is capable of inducing physical distress, illness or disease." While the Court recognized prior decisions finding direct physical loss in the absence of physical damage (e.g. asbestos, permeating odor, E. coli, carbon monoxide, ammonia, etc.), the Court concluded that such cases were factually distinct and that the line of cases requiring tangible injury to property were “more persuasive.” The Court reasoned that because COVID-19 did not produce any odor or condition that made the property “uninhabitable,” and Insureds did not otherwise allege a “distinct, demonstrable, physical alteration of the property” as required under 5th Circuit precedent, Insureds failed to plead a “direct physical loss.” Further, the Court held that even assuming the policies were ambiguous and/or that Insureds properly plead a direct physical loss, the Court determined that the above exclusion barred Insureds’ claims. Barbershop v. State Farm Lloyds, 2020 U.S. Dist. LEXIS 147276 (W. Dist. Texas, August 13, 2020). 

COVID-19 - MISSOURI FEDERAL COURT HOLDS THAT COVID-19 CLOSURES POTENTIALLY CONSTITUTE DIRECT, PHYSICAL LOSS: Plaintiff – Policyholders, who operated a number of restaurants and hair salons that shuttered due to presence of COVID-19 and Missouri’s COVID-19 emergency orders, submitted claims to Defendant-Insurer under their respective business interruption policies, which provided coverage for "accidental physical loss or accidental physical damage." Following a denial, Policyholders filed a declaratory action, alleging that given the flow of customers, employees, and visitors who were presumptively COVID-19 positive, their respective insured premises were infected, unsafe and unusable. Policyholders further contended that presence of COVID-19 and state-issued orders caused "direct physical loss or direct physical damage" to their premises by: (1) denying use of property; (2) damaging property; and (3) causing a necessary suspension of operations during a period of restoration. Policyholders further alleged that COVID-19 particles were a "physical substance" that contaminated the insured premises. Insurer filed a motion to dismiss based upon a failure to state a claim. In denying Insurer’s motion, the Court held that the Policyholders had "adequately alleged a direct physical loss" sufficient to survive the insurer's motion to dismiss. The court distinguished between "physical loss" and "physical damage" and found that Insurer’s attempt to conflate "loss" and "damage" to impose a requirement of "tangible, physical alteration" of property in order to trigger coverage was improper. In contrast, the Court concluded that a "physical loss" may occur when property is rendered uninhabitable or unusable for its intended purpose, even if there has been no physical alteration. Studio 417 Inc. v. Cincinnati Insurance Co., Case No. 20-cv-03127-SRB Order Denying Defendant's Motion to Dismiss (W.D. Mo, Aug. 12, 2020). 

COVID-19 - DC SUPERIOR COURT RULES IN FAVOR OF INSURER ON SUMMARY JUDGMENT: On August 6, 2020, the Superior Court for the District of Columbia held that Insured’s COVID-19 business income losses were not covered under commercial property policies. Insured-Restaurant Owners argued on summary judgment that they suffered covered loss and damage from Mayor’s orders declaring a public health emergency and ordering the closure of non-essential businesses due to the COVID-19 pandemic. Even accepting the dictionary definitions of “direct” and “physical” offered by Insureds, the Court noted that the orders “[s]tanding alone and absent intervening actions by individuals and businesses…did not effect any direct changes to the properties” and “did not have any effect on the material or tangible structure of the insured properties” to constitute a physical intrusion. Moreover, the Court found that the insureds “offer no evidence that COVID-19 was actually present on their insured properties at the time they were forced to close.” In denying summary judgment for Insureds and granting summary judgment for Insurer, the Court also distinguished cases from other jurisdictions finding “loss of use” can constitute “direct physical loss.” Finally, the Court noted that even in the absence of an express virus exclusion, Insureds were still required to demonstrate “direct physical loss.” While policyholder firms will no doubt argue that the decision is narrow in scope, the ruling nonetheless continues the trend of federal (New York) and state (Michigan) courts strictly applying policy language to require a showing of “direct physical loss” to property in order to demonstrate a covered COVID-19 claim. Rose’s 1, LLC, et al. v. Erie Ins. Exchange, Civil Case No. 2020 CA 002424 B (Wash. D.C., August 6, 2020).

WORKERS COMPENSATION – RESPONSES TO COVID-19 DIFFER AMONG THE STATES: With every state having a unique workers’ compensation structure, it is not surprising that there has been no single, standard approach to how COVID-19 workers’ compensation claims should be considered and adjudicated. Some state governments have enacted legislation which mandates that when certain categories of workers test positive for COVID-19, such employees are presumed to have contracted the virus while working. These regulatory schemes place a burden on the employer to prove that the infection was not work-related. On June 5, 2020, Illinois Governor Pritzker signed House Bill 2455 (“HB 2455”), which was recently amended to include a provision creating a rebuttable presumption that certain Illinois essential workers who contract COVID-19 did so during work. Employers can rebut the presumption by: 1) demonstrating compliance with CDC and/or IL Dept. of Public Health guidelines; 2) establishing that the employee contracted COVID-19 outside of work; or 3) establishing that the employee could not have contracted the virus at work (e.g. employee was not at work 14 days prior to diagnosis). HB 2455 also provides certain death benefits to the families of firefighters and policemen if the death resulted from COVID-19 and the virus was contracted between March 9, 2020 and December 31, 2020. Other states, such as California and Kentucky, have or are attempting to provide similar protections for other types of workers, such as grocery store employees. We will continue to monitor COVID-19 legislation and its impact on workers' compensation claims.

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