BSCR Firm News/Blogs Feed Sep 2021 00:00:00 -0800firmwise Surgeons Get Drilled in Eighth Circuit Ruling on COVID Coverage Aug 2021Insurance Law Blog<p>The Eighth Circuit recently <a href="">upheld</a> a ruling by the Southern District of Iowa granting a Motion to Dismiss a policyholder&rsquo;s lawsuit for failure to state a claim, finding that the policyholder failed to allege facts that showed a direct physical loss that would trigger coverage under the policy.</p> <p>In <i>Oral Surgeons v. Cincinnati Insurance</i>, the policyholder owned and operated oral surgery clinics in and around Des Moines, Iowa. The Oral Surgeons brought suit against the insurer for breach of contract and bad faith in its denial of coverage for losses suffered as a result of the suspension of non-emergency procedures due to COVID-19. The COVID-19 pandemic and subsequent government restrictions forced the clinic to cease its nonemergency procedures from March 2020 until the restrictions were lifted in May 2020. Oral Surgeons alleged that the government restrictions constituted a direct loss to property because Oral Surgeons was unable to fully use its offices. Oral Surgeons argued further that the term &ldquo;loss&rdquo;, defined in the disjunctive as &ldquo;physical loss&rdquo; or &ldquo;physical damage&rdquo;, in the policy, creates an ambiguity and should therefore be construed against the insurer.</p> <p>The Court of Appeals rejected the policyholder&rsquo;s arguments, reasoning that the policy as whole refers to &ldquo;loss&rdquo; as being physical in nature. Interpreting the policy to require a direct &ldquo;physical loss&rdquo; or &ldquo;physical damage&rdquo; to trigger business interruption and extra expenses coverage. The court primarily referred to the portion of the policy title &ldquo;period of restoration&rdquo; which exclusively discussed physical alterations to the building such as repair or relocation. Nowhere in the policy discussed intangible loss, such as mere loss of use.</p> <p>The Court of Appeals relied on <i>Pentair v. American Guaranty &amp; Liability Insurance</i> and <i>Source Food Technology v. U.S. Fidelity &amp; Guaranty Company</i> to justify their reasoning. The court likened the clinics&rsquo; loss of use of its offices to the policyholder <i>in</i> Pentair who experienced a power outage that shut down one of its supply factories in Taiwan. Although the power outage led to a significant increase in shipping costs, the court said a manufacturing shutdown was temporary and did not cause a direct physical loss of or damage to Pentair&rsquo;s supplies property. Therefore, the temporary shutdown did not constitute a direct physical loss. To hold otherwise would allow coverage to be established whenever property cannot be used for its intended purpose.</p> <p>&nbsp;Similarly, in <i>Source Food Technology</i>, a beef embargo prevented Source Food from receiving a major shipment, which ultimately caused the company to lose its biggest customer. The insurance company denied coverage because the shipment of beef was not <i>physically contaminated </i>or<i> damaged </i>therefore, not a direct physical loss<i>. </i>&nbsp;Eighth Circuit compared the government&rsquo;s COVID-19 restrictions in the present case to the beef embargo between the U.S. and Canada. A governmental regulation, although it impairs the function and value of a product, does not constitute direct &ldquo;physical loss&rdquo;.</p> <p>Applying Iowa and federal law the court found that the government&rsquo;s COVID-19 restrictions do not constitute direct physical loss. Further, the policyholder did not allege physical alteration of property in their complaint and the policy did not cover Oral Surgeons&rsquo; partial loss of use of its office without some type of direct physical damage. &nbsp;Additionally, the Court of Appeals did rejected the policyholder&rsquo;s argument that the word &lsquo;loss&rsquo; is ambiguous, stating, &ldquo;where no ambiguity exists, the Court will not write a new policy to impose liability on the insurer.&rdquo;</p> <p>Following in the footsteps of the U.S. District Court for the <a href=";an=114101&amp;format=xml&amp;stylesheet=blog&amp;p=5258">Eastern District of Michigan&rsquo;s ruling</a> that the Government closures do not trigger business interruption coverage and the <a href=";an=116534&amp;format=xml&amp;stylesheet=blog&amp;p=5258">Western District of Missouri&rsquo;s ruling</a> that a policyholder could not prevail on claims that were denied under a policy&rsquo;s Pollution Exclusion clause, the Eighth Circuit found that the government&rsquo;s COVID-19 restrictions do not constitute direct physical loss and the &ldquo;loss&rdquo; is not ambiguous.</p> <p>That said, there is no shortage of COVID-19 business interruption cases being filed around the country, where coverage has been denied, and the insured has filed suit.&nbsp; <a href="">See</a>, for example, the lawsuit recently filed by beloved Kansas City barbeque joint, Joe&rsquo;s Kansas City, against Lloyd&rsquo;s of London. We will keep our readers apprised of further major developments in this area.&nbsp;</p> Cannot Prevail with Pollution Exclusion | Western District of Missouri Grants Motion to Dismiss in Favor of Insurer on Claims of Losses from the COVID-19 Pandemic Jun 2021Insurance Law Blog<p>The Western District of Missouri&rsquo;s recent <a href="/B07AF5/assets/files/Documents/2020.12.02 Zwillo Order.pdf">ruling</a> in <i>Zwillo </i>provides yet another basis for insurers to deny coverage due to alleged losses incurred purportedly from the COVID-19 pandemic &mdash; certain pollution and containment exclusions.</p> <p>The issue before the Court was whether or not a policyholder met its burden to show it suffered a &ldquo;direct physical loss of or damage to property&quot; so as to trigger coverage under the policy. The Court granted the insurance company&rsquo;s motion to dismiss because the policyholder could not prove actual, demonstrable loss of or harm to some portion of the premises itself. The Court found that even if the policyholder could allege direct physical loss or damage as a result of the COVID-19 shutdown orders, the pollution and contamination exclusion would bar coverage because the provision expressly excluded damage or loss of value and even loss of use of property caused by a virus, like COVID-19.</p> <p><b>Loss of Use Does Not Amount to Physical Damage</b></p> <p>The policyholder in the case owned and operated the Westport Flea Market and Grill in Kansas City, and brought this putative class action against their insurance provider, Lexington Insurance, based on their allegations of wrongful denial of coverage under a commercial property insurance policy. The policyholder alleged that the COVID-19 pandemic interrupted business, which yielded an 80 percent loss of revenue. Essentially, they argued that their loss of the ability to access the physical property constituted &ldquo;physical loss.&rdquo; More specifically, they alleged that because the virus can be spread through respiratory droplets that can infect a person, leave the virus on surfaces, and/or remain in aerosols in the air, COVID-19 prevented them from being able to conduct their business. The Court amounted this to &ldquo;loss of use&rdquo; rather than the Policy&rsquo;s coverage of a loss due to physical alteration or damage of the property.</p> <p><b>Pollution and Contaminant Exclusion Barred Coverage</b>&nbsp;</p> <p>More importantly, the Court also reasoned that even if the Policyholder&rsquo;s claims could fall within &ldquo;direct physical loss of or damage to property,&rdquo; the &ldquo;Pollution and Contaminants Exclusion&rdquo; ultimately barred coverage. The Exclusion stated the following:</p> <p>&ldquo;This Policy does not cover loss or damage caused by, resulting from, contributed to or made worse by actual, alleged or threatened release, discharge, escape or dispersal of CONTAMINANTS or POLLUTANTS, all whether direct or indirect, proximate or remote or in whole or in part caused by, contributed to or aggravated by any physical damage insured by this Policy....</p> <p>CONTAMINANTS or POLLUTANTS means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste, which after its release can cause or threaten damage to human health or human welfare or causes or threatens damage, deterioration, loss of value, marketability or loss of use to property insured hereunder, including, but not limited to, bacteria, <b><i>virus, </i></b>or hazardous substances as listed in the Federal Water, Pollution Control Act, Clean Air Act, Resource Conservation and Recovery Act of 1976, and Toxic Substances Control Act or as designated by the U. S. Environmental Protection Agency. Waste includes materials to be recycled, reconditioned or reclaimed.&rdquo; (emphasis added.)</p> <p>The Policyholder argued that the exclusion was inapplicable for five different reasons; however, the Court found that these reasons merely misread the Policy and/or created ambiguity in the plain language. For example, one of the policyholder&rsquo;s reasons was that the purpose of the exclusion was based on environmental and industrial pollutions. However, the Court applied Missouri precedent that there is no requirement that the insured be in violation of an environmental law for a pollution exclusion to apply because the policy language must be enforced as written. Another reason the policyholder argued was that the risk industry has developed a &ldquo;virus-specific exclusion&rdquo; that would preclude coverage; however, the Court did not entertain the argument because the policy, as stated above, expressly excluded damages caused by a virus.</p> <p>The Court distinguished the recent holdings in the Western District where <a href=";an=111457&amp;format=xml&amp;stylesheet=blog&amp;p=5258">policyholders survived a motion to dismiss</a>. (<i>Studio 417, Inc. et al., v. The Cincinnati Ins. Co., </i>No. 20-cv-03127, 2020 WL 4692385 (W.D. Mo. Aug. 12, 2020), <i>K.C. Hopps, Ltd. v. The Cincinnati Ins. Co., </i>No. 20-cv-00437, 2020 WL 6483108 (W.D. Mo. Aug. 12, 2020), and <i>Blue Springs Dental Care, LLC et al., v. Owners Ins. Co., </i>No. 20-cv-00383, 2020 WL 5637963 (W.D. Mo. Sept. 21, 2020)). The Court reasoned that the main distinction between this case and <i>Studio 417, K.C. Hopps, </i>and <i>Blue Springs </i>is the pollution and contamination exclusion.</p> <p>While we have seen cases denying coverage based on the <a href=";an=114101&amp;format=xml&amp;stylesheet=blog&amp;p=5258">policyholder&rsquo;s loss from COVID-19 not meeting a policy&rsquo;s definition direct physical loss of direct physical loss,</a> this case instructs that pollution and contamination exclusions may also bar coverage for COVID-19 claims, depending on the exclusions plain meaning.&nbsp;</p> Holds COVID-19 Government Closures Do Not Trigger Business Interruption Coverage Jan 2021Insurance Law Blog<p>A recent ruling from the U.S. District Court for the Eastern District of Michigan has provided more guidance in predicting how COVID-19 related losses and litigation will be handled.</p> <p>In <i>Turek Enterprises, Inc., d/b/a Alcona Chiropractic v. State Farm Mut. Auto. Ins. Co., et al</i>, the Court ruled that State Farm Mutual Automobile Insurance Co. did not have to cover a chiropractic office&rsquo;s losses alleged from government-ordered closures due to COVID-19. The Court held that the insured failed to allege physical loss and that the virus exclusion bars coverage.</p> <p>This class action lawsuit seeking business interruption coverage was denied because the entire case focused on the definition of &ldquo;direct physical loss;&rdquo; however, did not demonstrate any &ldquo;tangible damage to covered property&rdquo; that was required as a condition precedent to coverage.</p> <p>The chiropractor sued State Farm in June alleging the insurer wrongfully applied a virus exclusion to deny coverage. The insured argued the virus exclusion did not relate to the claimed losses, which were solely caused by government-closure orders. To support its position, the insured also argued COVID-19 was not present on its property, negating the &ldquo;virus&rdquo; related exclusion.</p> <p>In Judge Ludington&rsquo;s Order, the Court noted that even if the chiropractor alleged that the government-mandated closures were the cause of loss, &ldquo;closure orders&rdquo; were <i>in response</i> to curbing the spread of COVID-19 and the virus that causes it. Accordingly, the chiropractor&rsquo;s business losses were barred by the policy&rsquo;s virus exclusion. The chiropractor&rsquo;s position disregarded &ldquo;the anti-concurrent causation clause, which extend[ed] the virus exclusion to all losses where a virus is part of the causal chain.&rdquo;</p> <p>Plaintiff argued the exclusion applied only to decontamination costs and State Farm misrepresented that provision of the policy. In reviewing the applicable policy, Judge Ludington found that &ldquo;[b]y its terms, the policy does not limit the virus exclusion to contamination, and plaintiff has failed to show that the virus exclusion is ambiguous.&rdquo; &nbsp;Furthermore, &ldquo;[e]ven if defendants misrepresented the purpose and extent of the virus exclusion in 2006, the plain, unambiguous meaning of the virus exclusion today negates coverage.&rdquo;</p> <p>In another creative argument, Plaintiff argued it had experienced &ldquo;tangible&rdquo; damage because the business was suspended by government closure orders; therefore, the business necessarily incurred ongoing &ldquo;passive depreciation,&rdquo; instead of a direct physical loss. &nbsp;The &ldquo;passive depreciation&rdquo; damage argued that all business equipment was continuing to lose value based on age and non-use.&nbsp; The Court rebuffed this argument by reasoning &ldquo;[t]he plain meaning of direct physical loss to covered property requires that there be a loss to covered property, and not just any loss.&rdquo;</p> Ultimately, counsel and the plaintiff&rsquo;s bar are both becoming more creative looking for special policy terms which ambiguity could open the door to such an argument as pleaded in this matter. Carriers should be addressing each claim and litigated coverage file on the individual claim&rsquo;s separate and distinct terms, facts and application. No two COVID-19 claims are the same, and each coverage issue must be individually reviewed in order to fairly and accurately determine coverage and its application.&nbsp; MDLs Are Among Us - JPML Allows Centralization of COVID-19 Insurance Coverage Cases Dec 2020Insurance Law Blog<p>The U.S. Judicial Panel on Multidistrict Litigation initially ruled centralization was not appropriate for businesses seeking business interruption insurance coverage because of varying policy language. See our post <a href=";an=111354&amp;format=xml&amp;stylesheet=blog&amp;p=5258">here.</a> &nbsp;At that time, more than 450 cases were pending in Federal Courts&mdash;now there are over 700.</p> <p>While the JPML rejected total centralization, in the same ruling the Panel suggested that the creation of smaller &ldquo;single-insurer&rdquo; MDLs could be efficient to centralize those actions. &nbsp;Cases argued against one insurer or insurance group were &ldquo;more likely to involve insurance policies utilizing the same language, endorsements, and exclusions&rdquo; that would make sharing common discovery and pretrial motion proceedings more efficient.</p> <p>Policyholders followed the JPML&rsquo;s suggestion, as there were 300 lawsuits against The Hartford, Cincinnati Insurance Co., Society Insurance Co., Travelers and various underwriters at Lloyd&rsquo;s of London that sought centralization into single carrier MDLs. &nbsp;The JPML had to decide whether to create five separate &ldquo;single-insurer&rdquo; MDLS to centralize all of the COVID-19 coverage actions against these specific carriers. &nbsp;On October 2, the JPML ruled that centralization was appropriate for cases against Society Insurance Co., but declined to centralize actions against The Hartford, Cincinnati Insurance Co., Travelers, and Lloyd&rsquo;s of London.</p> <p><b><i>Opponents of Centralization Argued Varying Policy Language and State Law Made MDL Inappropriate. </i></b></p> <p>The insurers argued to the JPML, as they had previously ruled, that the varying policy language would be inappropriate for centralization. &nbsp;More specifically, the insurers argued that business interruption policy language can vary even among the policies issued by the same insurance company.</p> <p>Additionally, Lloyd&rsquo;s underwriters argued that the phrase &ldquo;single-insurer MDL&rdquo; was a misnomer as they are not the same insurer, but rather forty separate insurance carriers selling various policies to business through the Lloyd&rsquo;s marketplace.</p> <p>Policyholders opposing centralization echoed the insurer&rsquo;s arguments about the policy language and focused their arguments on the differences among states&rsquo; laws interpreting the prerequisites for business interruption coverage. &nbsp;For example, the requirement that a business interruption loss stem from a &ldquo;direct physical loss of or damage to&rdquo; its property. &nbsp;A group of Chicago-area businesses argued that decisions in Illinois (and some other states) do not require a tangible alteration or damage to a property to be considered direct physical loss.</p> <p><b><i>Proponents of Centralization Argued COVID-19 Pandemic Itself Triggering their Losses Gave Rise to Common Factual Issues.</i></b></p> <p>The policyholders supporting centralization argued that the cases filed against the same or related insurers would give rise to numerous common and overlapping factual questions because they all related to the COVID-19 pandemic. &nbsp;Furthermore, the language of the policy was a standard form used by the respective insurer.</p> <p>For example, a Florida restaurant argued that Lloyd&rsquo;s underwriters commonly provided business interruption coverage on standard forms that are approved by the Insurance Services Office; therefore, they shared many common terms and a single court could determine &ldquo;in one stroke&rdquo; if the COVID-19 pandemic triggered standard terms in the policies, including the direct physical loss or damage requirement.</p> <p>The Florida restaurant also addressed the issue of any uncommon questions, e.g., whether or not state and/or municipal civil authority orders prohibited access to covered property. &nbsp;They argued the questions &ldquo;may turn to some extent on common issues, and the resolution of all common and uncommon questions by one judge will allow the just and expeditious resolution of all actions to the overall benefit of the parties.&rdquo;</p> <p>Another group of policyholders added that &ldquo;the sheer volume of similar cases across the country implicating common issues&rdquo; made centralization appropriate. &nbsp;They argued that an insurer &ldquo;consistently utilizes a small subset of template policy forms&rdquo; and has &ldquo;uniformly denied&rdquo; business interruption claims. &nbsp;Furthermore, &ldquo;[w]hether an insurance policy provides coverage cannot be separated from the factual predicate that gives rise to coverage in the first place. &nbsp;Here, the related actions all share the same or similar triggering events: the losses of business income occasioned by COVID19 and/or related stay-at-home orders.&rdquo;</p> <p><b><i>The JPML&rsquo;s Most Important Factor for Centralization was the Geographic Scope of Action</i></b></p> <p>What set Society&rsquo;s policies apart from the other insurers, were the &ldquo;defined geographical scope of these actions&rdquo; implicating the insurance laws of only six states.&nbsp;Judge Chang stated that any potential differences among the cases could be resolved with a number of pretrial techniques including state-specific tracks or a bellwether process.</p> <p>The JPML emphasized that centralization involving Hartford, Cincinnati, and Travelers would not promote efficient resolution because of the sheer number and geographic scope of the cases.&nbsp;Especially when many of the policyholder plaintiffs &ldquo;are on the brink of bankruptcy as a result of business lost due to the COVID-19 pandemic and the government closure orders.&rdquo;</p> <p>For Lloyd&rsquo;s underwriters, the JPML said that centralization was not appropriate because it was not a single insurance company but rather a group of several dozen distinct insurers with varying policies.&nbsp;&ldquo;The inclusion of non-standard and non-common forms and policy language would hinder the ability of the transferee court to organize the litigation and quickly reach the common factual and legal questions,&rdquo; the JPML wrote.</p> <p>Nevertheless, the JPML encouraged the insurers to engage in &ldquo;informal cooperation and coordination&rdquo; to be efficient and avoid duplication.</p> <p>Once again, we see creative arguments utilized successfully to support centralization. &nbsp;Regardless of whether or not an insurer uses standard forms, each claim is unique, and insurers must continue to approach all COVID-19 interruption claims, in addition to all claims, thoroughly and cautiously.&nbsp;</p> District of Texas provides insureds with "out" to skirt federal jurisdiction in COVID-19 business interruption coverage cases Oct 2020Insurance Law Blog<p>Like many businesses during the COVID-19 pandemic, Texas dentist Louis Orsatti&rsquo;s practice suffered significant lost business income as a result of the local government&rsquo;s shelter-in-place order in the spring and early summer of 2020. And also like many other businesses, Orsatti made a claim on his practice&rsquo;s insurance policy issued by Allstate. Allstate assigned a claims adjuster, Blesssing Sefofo Wonyaku, who allegedly summarily denied Orsatti&rsquo;s claim without performing any kind of investigation whatsoever.</p> <p>Orsatti filed a bad faith suit in Texas state court against Allstate after his claim was denied, joining Wonyaku as a defendant. Allstate removed the case to the United States District Court for the Western District of Texas arguing that Wonyaku, a citizen of Texas, had been fraudulently joined solely for the purpose of defeating federal diversity of citizenship jurisdiction. Finding that a claim was properly asserted against Wonyaku, the federal magistrate judge recommended the case be remanded back to state court (as of the date of this posting, the district judge has neither accepted nor rejected the recommendation).</p> <p>Despite recognizing that many cases have held a claims adjuster cannot be individually liable for bad faith claims made against an insurer, the court here held that the allegations here implicated Wonyaku based on &ldquo;her conduct as an individual adjuster.&rdquo; Specifically, the court focused on Wonyaku&rsquo;s allegedly pre-textual, results-oriented investigation, her failure to request additional information from the insured, and her &ldquo;immediate&rdquo; issuance of a denial letter. Consequently, the court held the complaint asserted a valid cause of action against Wonyaku and the case was accordingly remanded for lack of subject matter jurisdiction. The case is <i>Orsatti v. Allstate Ins. Co.</i>, No. 5-20-CV-00840-FB-RBF, 2020 U.S. Dist. LEXIS 185935 (W.D. Tex. Oct. 7, 2020), and the magistrate&rsquo;s report and recommendation can be found <a href="">here</a>. &nbsp;</p> <p>Policyholders may be tempted to stretch the <i>Orsatti</i> case to its limits to avoid federal jurisdiction when a non-diverse claims adjuster is involved. This may be especially true if the judicial panel on multidistrict litigation opts to create carrier-specific MDLs,<a href="file:///C:/Users/LJR/Desktop/Western%20District%20of%20Texas%20provides%20insureds%20with%20out%20to%20skirt%20federal%20jurisdiction%20in%20COVID-19%20business%20interruption%20insurance%20coverage%20cases.docx#_ftn1" name="_ftnref1" title="">[1]</a> since struggling business may be looking for some much-needed quick money rather than being bogged down in protracted MDL proceedings. This may be particularly worrisome in jurisdictions such as Missouri, where the waters get murky when it comes to an adjuster&rsquo;s personal liability in first-party claims. While Missouri generally bars such liability in third-party bad faith claims (<i>Shobe v. Kelly</i>, 279 S.W.3d 203 (Mo. App W.D. 2009)), first-party bad faith claims fall within the ambit of Missouri&rsquo;s vexatious refusal to pay statutes (RSMo &sect;&sect; 375.296 and 375.420) which generally displace other causes of action arising from an insurer&rsquo;s denial of coverage. On its face, the vexatious refusal statute only permits a suit to be filed &ldquo;against any insurance company,&rdquo; which would seem to preclude individual liability on the adjuster&rsquo;s part. However, some courts have recognized that despite the vexatious refusal statute&rsquo;s exclusivity, other torts may still be viable where they are not based strictly on the insurer&rsquo;s denial of coverage. In fact, United States District Court for the Eastern District of Missouri specifically held that conduct &ldquo;which may have occurred during the insurer&rsquo;s investigation or claims handling&rdquo; can support a cause of action against an individual adjuster independent from a vexatious refusal claim. (<i>Travelers Indem. Co. of Am. v. Holtzman Props., L.L.C.</i>, No. 4:08-CV-351 CAS, 2008 U.S. Dist. LEXIS 63966 (E.D. Mo. Aug. 21, 2008)). &nbsp;&nbsp;&nbsp;&nbsp;</p> <p>The <i>Orsatti</i> case provides another arrow in policyholders&rsquo; quivers to remain in state court by joining an individual adjuster as a defendant. It specifically brings deficiencies in claims handling to the forefront of the analysis, which prior Missouri precedent demonstrates may be sufficient to support an independent claim aside from a vexatious refusal claim against the carrier. &nbsp;</p> <p>The case also highlights the need not to be too quick to deny a COVID-related business interruption claim. While it may be tempting after reviewing dozens or hundreds of similar claims involving similar policy language to issue a form denial letter without giving it a second thought, <i>Orsatti</i> illustrates how this may expose the adjuster to personal liability and prevent coverage counsel from litigating in their preferred court.</p> <div><br clear="all" /> <hr align="left" size="1" width="33%" /> <div id="ftn1"> <p><a href="file:///C:/Users/LJR/Desktop/Western%20District%20of%20Texas%20provides%20insureds%20with%20out%20to%20skirt%20federal%20jurisdiction%20in%20COVID-19%20business%20interruption%20insurance%20coverage%20cases.docx#_ftnref1" name="_ftn1" title="">[1]</a> As of the date of this writing, requests to create five &ldquo;single-insurer&rdquo; MDLs were under advisement by the JMPL. The carriers in question are The Hartford, Cincinnati Insurance Co., Society Insurance Co., Travelers, and various underwriters at Lloyd&rsquo;s of London. A request to create a single MDL encompassing all carriers was previously denied, which was discussed in another post found <a href=";an=111354&amp;format=xml&amp;stylesheet=blog&amp;p=5258">here</a>.</p> </div> </div> Court of Appeals Upholds Limitations on Stacking of Uninsured Motorist Coverage Sep 2020Insurance Law Blog<p>In <i>Johnson v. State Farm Mutual Automobile Insurance Co.</i>, the Missouri Court of Appeals, Southern District, enforced insurance policy language to limit the extent of stacking of uninsured motorist coverage (&ldquo;UM&rdquo;) under multiple personal auto policies. The decision allows insurers with appropriate exclusionary language to limit &ldquo;stacking&rdquo; to the $25,000 limit of the Missouri Motor Vehicle Financial Responsibility Law (&ldquo;MVFRL&rdquo;) as to each additional vehicle insured that was not directly involved in the accident.</p> <p>Plaintiff Tim Johnson appealed the trial court&rsquo;s granting of summary judgment to State Farm, which limited UM stacking. The State Farm policies contained owned-vehicle exclusions with respect to the UM coverage that provided for no coverage in excess of the amount required by the MVFRL for an insured who sustains a bodily injury while &ldquo;occupying a motor vehicle owned by you <b>if it is not</b> <b><u>your car</u></b> or a newly acquired car.&rdquo; At issue on appeal was the definition of &ldquo;your car&rdquo; in the policy language and whether the owned-vehicle exclusion was applicable in this case.</p> <p>Johnson owned three vehicles, all of which were insured by State Farm under separate policies that included UM coverage. Each of the policies stated a UM limit of $100,000 per person, and included the above-referenced owned-vehicle exclusion which allowed the insurer to reduce the amount of UM coverage with respect to insured vehicles that were not directly involved in the collision to the amount required under Missouri&rsquo;s Financial Responsibility Law, or $25,000. Johnson was in one of his three insured vehicles when he was involved in a collision with an uninsured motorist. The insurer provided Johnson with the full limit of UM coverage pursuant to the policy on the vehicle he was driving, $100,000, and the minimum amount of UM coverage required by the MVFRLor &nbsp;on the other two policies, $25,000 per policy, pursuant to the policies&rsquo; owned-vehicle exclusion.</p> <p>Subsequently, Johnson sued State Farm claiming breach of contract and vexatious refusal to pay for failing to pay the maximum $100,000 UM policy limits stacked by each of &nbsp;his two insured vehicles that were not involved in the accident. Johnson moved for partial summary judgment arguing that the owned-vehicle exclusion did not apply, was ambiguous, and conflicted with public policy and Missouri law. State Farm filed a motion for summary judgment arguing that the owned-vehicle exclusion did apply and that its $25,000 payment per policy was proper in accordance with the policy&rsquo;s language and Missouri statutory requirements. The trial court granted State Farm&rsquo;s motion for summary judgment.</p> <p>On appeal, Johnson raised similar issues and the appellate court affirmed the lower court&rsquo;s decision to uphold the owned-vehicle exclusion, limiting the Plaintiff&rsquo;s recovery to $25,000 per policy for Johnson&rsquo;s additional insured vehicles that were not involved in the collision.</p> <p>In his first point on appeal, Johnson claimed that the owned-vehicle exclusion did not apply because the vehicle he was occupying was &ldquo;your car&rdquo; as listed on the Declarations Page in any of his three policies at the time of the collision. However, the policies&rsquo; Declarations Page listed only one vehicle under &ldquo;your car&rdquo; in each policy, and Johnson was only in one &ldquo;your car&rdquo; at the time of the crash. The Court, citing the Missouri Supreme Court&rsquo;s <i>Floyd-Tunnell v. Shelter Mutual Insurance Co.</i> 493 S.W.3d 215 (Mo. banc 2014), upheld the unambiguous policy language as written, finding that Johnson was not in a &ldquo;your car&rdquo; as defined by the policy&rsquo;s language for the two vehicles not involved in the accident and, therefore, the owned-vehicle exclusion applied on those two policies.</p> <p>Points two and three asserted that the trial court erred in granting summary judgment in the insurer&rsquo;s favor because of ambiguities in the policies that should be resolved in Johnson&rsquo;s favor. The Court ruled that both of Johnson&rsquo;s arguments were effectively foreclosed by <i>Floyd-Tunnel,</i> 493 S.W. 3d at 221, wherein the Missouri Supreme Court found similar policy language clear and unambiguous.&nbsp;</p> <p>In his final point on appeal, Johnson argued that the owned-vehicle exclusion reduced the amount of UM coverage available to the insured and was therefore void as against public policy and Missouri law. The court denied Johnson&rsquo;s point. State Farm provided Johnson with the full amount of UM coverage for the insured vehicle he was occupying during the collision, as well as the MVFRL- required amount of coverage on the other two policies, in accordance with the plain owned-vehicle exclusion language of the policies&rsquo; UM coverage.</p> The Court of Appeals decision in <i>Johnson</i> reaffirms the Missouri judiciary&rsquo;s commitment to upholding the plain meaning of insurance policy exclusions as written. Moving forward, insurers should consider checking the language of the owned-vehicle exclusions under their policies&rsquo; UM clauses and ensure that whatever language is used clearly indicates which vehicle the policy applies to and which vehicles qualify under the owned-vehicle exclusion.&nbsp;&nbsp;<br /> <br /> <em>* Hannah Chanin, Law Clerk in the St. Louis office of Baker Sterchi, assisted in the research and drafting of this post. Chanin is a 3L student at the Washington University St. Louis School of Law.</em> Court Denies Motion to Dismiss Action for COVID-19 Related Losses under an All-Risk Policy Sep 2020Insurance Law Blog<p>On August 12, 2020, the United States District Court for the Western District of Missouri, Southern Division, in <i>Studio 417, Inc., et al. v. The Cincinnati Insurance Company</i>, denied defendant Cincinnati Insurance Company&rsquo;s Motion to Dismiss Plaintiffs&rsquo; First Amended Complaint. Plaintiffs alleged losses due to COVID-19 and resulting from COVID-19 county Closure Orders in the Springfield and Kansas City metropolitan areas. Plaintiffs filed suit against Defendant after Defendant denied coverage for Plaintiffs&rsquo; COVID-19 related losses.</p> <p>Plaintiff Studio 417, Inc. operates hair salons in the Springfield, Missouri metropolitan area. The remaining plaintiffs own and operate full-service restaurants in the Kansas City metropolitan area. Plaintiffs purchased &ldquo;all-risk&rdquo; property insurance policies from Defendant. The policies provided payment for direct loss unless the loss was excluded or limited. Under the policies, a &ldquo;Covered Cause of Loss&rdquo; was defined as an &ldquo;accidental [direct] physical loss <i>or</i> accidental [direct] physical damage.&rdquo; None of the policies included any exclusion for losses caused by viruses or communicable diseases.</p> <p>Plaintiffs alleged that their businesses were rendered unusable by the presence of COVID-19 and the issuance of Closure Orders forcing them to either suspend or reduce their business, causing a direct physical loss or damage to their premises. Plaintiffs sought a declaratory judgment against Defendant and sued Defendant for breach of contract based on the following policy provisions: Business Income coverage; Extra Expense coverage; Dependent Property coverage; Civil Authority coverage; Extended Business Income coverage; Ingress and Egress coverage; and Sue and Labor coverage. Plaintiffs also sought class certification for 14 nationwide classes and a Missouri subclass for Defendant&rsquo;s Missouri policyholders that were denied coverage due to COVID-19 losses.</p> <p>Defendant filed its Motion to Dismiss primarily arguing that the policies only provide coverage for &ldquo;income tied to physical damage to property[.]&rdquo; Plaintiffs emphasized that the policy expressly covered for &ldquo;loss&rdquo; <i>or</i> &ldquo;damage&rdquo;, distinguishing the two terms for use of the disjunctive. Neither &ldquo;physical loss&rdquo; nor &ldquo;physical damage&rdquo; was defined by the policy.</p> <p>The Court found, based on the record, that Plaintiffs adequately stated a claim for direct physical loss, relying on the plain and ordinary meaning of the phrase. In so finding, the Court relied on other court cases that recognized a physical loss may occur when the property has been determined to be uninhabitable or unusable. The Court did, however, acknowledge that case law exists to support Defendant&rsquo;s proposition that physical damage is required to show a physical loss. However, the Court found that those cases were distinguishable from the present case in that the cases cited by Defendant were decided at the summary judgment stage and the Plaintiffs here adequately plead the existence of physical and active substances, whether on surfaces or in the air, to have plausibly met their burden. The Court denied Defendant&rsquo;s Motion to Dismiss in its entirety, but the Court made clear that it was not holding that physical loss would be found whenever a business suffers any economic harm, rather under the circumstances this case.</p> <p>Though Defendant&rsquo;s Motion to Dismiss was denied, the Court&rsquo;s ruling is not the final determination in this case on the issue of whether Plaintiffs&rsquo; COVID-19 losses will be covered by the policy. Here, the Court emphasized that to survive a Motion to Dismiss, Plaintiffs must have merely pled enough facts (which are accepted as true) to proceed to discovery. The Court found that they did. Defendant will likely take another bite at the apple and file a motion for summary judgment later in the case.</p> [Insurance] Policy Does Not Fit All - JPML Limits Centralization of COVID-19 Insurance Coverage Cases...At This Time Sep 2020Insurance Law Blog<p>Hundreds of businesses seeking centralization of litigation for insurance coverage for losses from the COVID-19 pandemic have to file their cases elsewhere.</p> <p>On August 12, 2020, in a much-anticipated ruling, The U.S. Judicial Panel on Multidistrict Litigation rejected two petitions to centralize hundreds of cases filed by the policyholders of businesses suffering losses from the Pandemic; however, the panel did indicate that centralization may certainly be appropriate for cases against single insurer policies.</p> <p>Attempts to centralize the COVID-19 cases date back to April, when two groups of policyholders asserted that the insurance coverage cases pending in numerous Federal Courts across the country were more suited as an MDL. At the time, there were fewer than twenty cases pending in Federal Courts. As of August 12, 2020, there are more than 450 with countless others anticipated in the coming year. Insurance companies were uniformly opposed to creation of any type of MDL; whereas, policyholders&rsquo; positions varied.</p> <p>Policyholders sought centralization in the Northern District of Illinois in Chicago, and in the Eastern District of Pennsylvania in Philadelphia, respectively. The policyholders argued the common fact issues included: whether government closure orders trigger coverage, what satisfies business interruption policies&rsquo; standard requirement of &ldquo;direct physical loss or damage&rdquo; to property, and whether any exclusions apply, (i.e., &ldquo;contamination&rdquo; and/or &ldquo;virus&rdquo; related losses.)</p> <p>Reasoning that the cases involved hundreds of insurers and a wide variety of different policy forms, the JPML found that the movants actually presented very few common questions of fact, and such few facts were outweighed by the efficiency challenges of centralizing the litigation across an entire insurance industry. The panel found that even smaller regional or state-based MDLs would suffer from the same common fact issues, because no two policies are necessarily identical and each claim (while similar) will necessarily have different facts.</p> <p>Ultimately, the JPML ruled that an industry wide multidistrict litigation would &ldquo;not promote a quick resolution&rdquo; of cases where &ldquo;time is of the essence.&rdquo;</p> <p>Pivoting, the JPML did suggest that the creation of smaller &ldquo;single-insurer&rdquo; MDLs could be efficient to centralize those actions. They found that cases argued against one insurer or insurance group were &ldquo;more likely to involve insurance policies utilizing the same language, endorsements, and exclusions&rdquo; that would make sharing common discovery and pretrial motion proceedings more efficient.</p> <p>Attorneys sought centralization hoping that some procedural mechanism would be found to prevent the chaos. Ultimately, maintaining separate and distinct claims and cases will allow carriers to better address individual cases and claims handling on a much smaller, more controlled scale.</p> <p>Carriers should continue to thoroughly and cautiously approach all claims, including COVID-19 interruption claims.&nbsp;<em><br /> </em></p> <p><i>* Kelly M. &ldquo;Koki&rdquo; Sabat&eacute;s assisted in the research and drafting of this post. Sabat&eacute;s earned her J.D. from the University of Missouri-Columbia this Spring and is a current&nbsp;candidate for admission to the Missouri Bar.</i></p> Reaffirms Reach of Vexatious Refusal to Pay Statute Aug 2020Insurance Law Blog<p><span data-preserver-spaces="true">On June 26, 2011, Farzad Qureshi was rear-ended by a hit and run driver while traveling westbound on Interstate 270 in Ferguson, Missouri. Mr. Qureshi filed a claim with his insurance company, American Family, the following day reporting back, neck and head injuries. He provided American Family the license plate number of the other driver, but they could not locate the driver or the owner. Thereafter, without advising him about his Uninsured Motorists (&ldquo;UM&rdquo;) benefits, American Family told Mr. Qureshi it would be closing his file.</span></p> <p><span data-preserver-spaces="true">Nevertheless, Mr. Qureshi repeatedly updated American Family regarding his treatment, instead of accepting the claim denial. And, after treating for years and receiving a surgery recommendation estimated at approximately $200,000, he made a UM policy limits demand through his attorney for $75,000. Ultimately, after being provided all his medical and employment records, American Family made a $20,000 counteroffer, which Mr. Qureshi rejected as insufficient. Thereafter, he filed suit against American Family for (1) breaching the UM provision of his insurance policy and (2) vexatious refusal to pay pursuant to &sect;375.420, RSMo., asserting that American Family, without reasonable cause or excuse, refused to pay him the available UM limits.</span></p> <p><span data-preserver-spaces="true">After a three-day jury trial, the court entered judgment on the jury&rsquo;s verdict in favor of Mr. Qureshi for $75,000 on his UM claim, $18,000 in penalties on his &sect;375.420 vexatious refusal to pay the claim, in addition to awarding $96,828 in attorney&rsquo;s fees. American Family appealed.</span></p> <p><span data-preserver-spaces="true">On appeal in the Missouri Court of Appeals, Eastern District, American Family claimed there was insufficient evidence to support the jury&rsquo;s finding of vexatious refusal to pay under &sect; 375.420. American Family made evidentiary challenges stating that: (1) the trial court erred in admitting its corporate representative&rsquo;s testimony (2) the trial court erred in admitting evidence of its coverage limits of the policies and the settlement offers and demands exchanged between Mr. Qureshi and American Family while the suit was pending, and (3) the trial court erred in permitting Mr. Qureshi&rsquo;s expert witness to opine that American Family vexatiously handled Qureshi&rsquo;s UM claim.</span></p> <p><span data-preserver-spaces="true">The Court of Appeals affirmed the trial court judgment in Mr. Qureshi&rsquo;s favor finding that when Mr. Qureshi made reasonable demands during settlement negotiations, his demands went unanswered by American Family, and ultimately resulted in a low-ball settlement offer. Unfortunately for American Family, its refusal to pay or offer a reasonable amount during settlement negotiations was presented to the jury and admitted into evidence.</span></p> <p>The appellate court reiterated the breadth of &sect;375.420 noting that the evidence that American Family sought to omit from trial was admissible to prove vexatious refusal to pay under &sect;375.420. In other words, &sect;375.420 allows a jury to consider all evidence, testimony, circumstances and facts that an insurer had up <em>until</em>&nbsp;trial for purposes of determining whether an insurer accepted reasonably in denying or failing to pay a claim. Under &sect;375.420&rsquo;s standards, the jury need only find (a) that Mr. Qureshi had an insurance policy with American Family, (b) that American Family refused to pay his losses, and (c) that American Family&rsquo;s refusal was without reasonable cause or excuse.</p> <p><span data-preserver-spaces="true">In three other ancillary issues, the court held that the excerpts of deposition testimony of two claims adjusters of American Family who were assigned to Mr. Qureshi&rsquo;s claim were properly admitted into evidence to show vexatious refusal to pay citing Missouri law, which allows depositions to be used &ldquo;for any purpose.&rdquo; Moreover, the court decided that American Family&rsquo;s low settlement offer, and Mr. Qureshi&rsquo;s settlement demands, were properly admitted into evidence to show vexatious refusal to pay, a clear exception to the general rule that evidence of settlement negotiations are not admissible at trial.</span></p> <p><span data-preserver-spaces="true">Finally, the court confirmed that both the policy limits of UM coverage in his American Family policy and Mr. Qureshi&rsquo;s expert&rsquo;s testimony regarding American Family&rsquo;s actions were properly admitted into evidence to show vexatious refusal to pay.</span></p> <p><em>Qureshi</em>&nbsp;stands as a cautionary tale to insurers that their investigations into and evaluations of claims must be fair, thorough and reasonable. Otherwise, &sect;375.420 not only allows for damages and penalties but also attorney&rsquo;s fees, which will almost assuredly be approved where the insured is successful.</p> <p><em>* Kameron Fleming, Summer Law Clerk in the St. Louis office of Baker Sterchi, assisted in the research and drafting of this post. Fleming is a rising 3L student at the Washington University St. Louis School of Law.</em></p> Claims in the time of COVID-19 Apr 2020Insurance Law Blog<p>Business interruption insurance is a hot topic in insurance coverage law. Most policies afford coverage for lost income only if the business has sustained &ldquo;property damage.&rdquo;&nbsp;Property damage is typically defined to mean direct physical injury to tangible property.&nbsp;Policyholders seeking to obtain coverage for COVID-19 stay-home orders may seek to leverage a recent Pennsylvania Supreme Court decision in a case not related to insurance to advance the argument that COVID-19, and/or governmental stay-home orders, has caused &ldquo;property damage.&rdquo;&nbsp;In that case, the Pennsylvania Supreme Court found that any location, including an individual business, is within a disaster area.&nbsp;We expect policyholders to argue that their business have, thus, arguably sustained &ldquo;property damage,&rdquo; triggering their coverage.&nbsp;</p> <p>In <i>Friends of DeVito, et al. v. Tom Wolf, Governor, et al.</i> 2020 WL 1847100 (PA, April 13, 2020), the Pennsylvania Supreme Court shot down a lawsuit challenging Gov. Tom Wolf&rsquo;s authority under state law to order &ldquo;non-life-sustaining&rdquo; businesses to shut down as a means of reducing the spread of COVID-19.&nbsp;The challengers in the case included Republican state legislative candidate, a public golf course, and a licensed realtor.&nbsp;They all argued that Gov. Wolf lacked authority to issue his Executive Order because the COVID-19 pandemic did not fall under the list of natural disasters outlined in the State&rsquo;s emergency code.</p> <p>The Pennsylvania Emergency Code defines &ldquo;natural disaster&rdquo; as:</p> <p style="margin-left: 40px;">Any hurricane, tornado, storm, flood, high water, wind-driven water, tidal wave, earthquake, landslide, mudslide, snowstorm, drought, fire, explosion or other catastrophe which results in substantial damage to property, hardship, suffering or possible loss of life.</p> <p>While this code points to specific disasters (i.e., hurricane, tornado, storm etc.&hellip;), it also includes a catchall phrase for any &ldquo;other catastrophe which results in <b>substantial damage to property</b>, hardship, suffering or possible loss of life.&rdquo;</p> <p>The challengers argued that pandemics could not be classified as a &ldquo;natural disaster&rdquo; under this code because they are too dissimilar to the natural disasters specifically listed.&nbsp;However, the Pennsylvania Supreme Court disagreed, noting that there was no commonality among the listed natural disaster in the code as some were weather-related and others, were not.</p> <p>Most importantly, and the interesting language we are tracking, the Pennsylvania Supreme Court went on to hold that COVID-19 is a &ldquo;natural disaster&rdquo; because it &ldquo;results in substantial damage to property, hardship, suffering or possible loss of life.&rdquo;&nbsp;Because the virus is spread from person-to-person contact, has an incubation period of up to fourteen days and can live on surfaces for up to four days, any location, including an individual business, is within a disaster area and is thus damaged.&nbsp;Additionally, the Pennsylvania Supreme Court rejected the argument that the actual presence of the disease at a specific location was required before it could be shutdown, thus holding that all properties were damaged because of the manner in which the disease spreads.&nbsp;This could have implications in policy interpretation regarding physical damage.</p> <p>In enforcing the governor&rsquo;s authority, the court held that the &ldquo;COVID-19 pandemic is, by all definitions, a natural disaster and a catastrophe of massive proportions.&rdquo;&nbsp;We expect that policyholders may argue that the Pennsylvania Executive Order, like many other State&rsquo;s orders, is a declaration that business property has been damaged and is unsafe due to the Coronavirus.&nbsp;Because policyholders have the burden of proving that a loss is within a policy&rsquo;s insuring agreement, we expect to see a multitude of approaches to try to bring COVID-19 business disruptions within the ambit of &ldquo;property damage,&rdquo; and the Pennsylvania Supreme Court, while addressing right-to-assemble claims, may have provided one argument that we could see advanced in the skirmishes over coverage for business interruption losses.</p> <p>It should be noted that Pennsylvania, New York, Massachusetts, Ohio, and New Jersey have proposed legislation prohibiting insurers from denying business interruption claims for losses caused by COVID-19 to small business in their respective states.&nbsp;However, Congress is also considering legislation that would cap the insurance industry&rsquo;s exposure to COVID-19 pandemic claims.&nbsp;We will continue to monitor this ever changing, fluid situation.</p>