(August 17, 2020) Missouri business interruption cases filed against an insurance company advance, a U.S. federal judge ruled last week. Presiding over the United States District Court for the Western District of Missouri Southern Division, Judge Stephen R. Bough ruled that cases filed by Missouri businesses against the Cincinnati Insurance Company are viable.
The Cincinnati Insurance Company had filed a motion to dismiss the cases, which were filed against the insurer after it denied business interruption coverage to businesses closed or crippled by government-mandated lock downs that have followed the Covid-19 outbreak.
Plaintiffs named in this case include Studio 417, Inc.; Grand Street Dining, LLC; GSD Lenexa, LLC; Trezomare Operating Company, LLC; and V’s Restaurant, Inc. Studio 417 operates hair salons in the Springfield, Missouri, metropolitan area. Grand Street, GSD, Trezomare, and V’s Restaurant own and operate full-service dining restaurants in the Kansas City metropolitan area.
The plaintiffs all purchased “all-risk” property insurance policies from the defendant for their hair salons and restaurants. All-risk policies cover all risks of loss except for risks expressly and specifically excluded by the policy. The policies include a Building and Personal Property Coverage Form and Business Income (and Extra Expense).
The defendant issued each plaintiff a separate policy, and all were in effect during the applicable time period. The parties agree, the judge noted in his ruling, that the policies all contain the same relevant language.
The policies provide that the defendant would pay for “direct ‘loss’ unless the ‘loss’ is excluded or limited” therein. A “Covered Cause of Loss” “is defined to mean accidental [direct] physical loss or accidental [direct] physical damage.”
Physical Loss or Physical Damage Undefined, No Virus Exclusion
The judge’s ruling noted that the policies do not define “physical loss” or “physical damage.” The policies also “do not include, and are not subject to, any exclusion for losses caused by viruses or communicable diseases.”
A loss is a prerequisite to invoke the different types of coverage sought in this lawsuit. In addition, any ambiguity in an insurance policy favors the insured in any dispute; because the insurer wrote the language and is therefore responsible for any ambiguity in it.
First, the Policies provide for Business Income coverage. Under this coverage, the defendant agreed to pay for the actual loss of ‘Business Income’ sustained due to the necessary ‘suspension’ of ‘operations’ during the ‘period of restoration.’ The suspension must be caused by direct ‘loss’ to property at a ‘premises’ caused by or resulting from any Covered Cause of Loss.
Civil Authority Coverage
Second, the Policies provide “Civil Authority” coverage. This coverage applies to the actual loss of ‘Business Income’ sustained ‘and necessary Extra Expense’ sustained (when it is) caused by action of civil authority that prohibits access to the Covered Property when:
- a Covered Cause of Loss causes direct damage to property other than the Covered Property,
- the civil authority prohibits access to the area immediately surrounding the damaged property,
- the action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage[.]’
Ingress and Egress Coverage
Third, the Policies provide “Ingress and Egress” coverage. This coverage means the insurer will pay for the actual loss of ‘Business Income’ the business sustains and necessary extra expense sustained that are caused by the prevention of existing ingress or egress at a ‘premises’ shown in the Declarations due to direct ‘loss’ by a Covered Cause of Loss at a location contiguous to such ‘premises.’ However, coverage does not apply if ingress or egress from the ‘premises’ is prohibited by civil authority.
Dependent Property Coverage
Fourth, the Policies provide “Dependent Property” coverage. This coverage applies if the insured suffers a loss of Business Income because of a suspension of its business “caused by direct ‘loss’ to ‘dependent property.’”
The judge’s ruling notes: “Dependent property means property operated by others whom [the insured] depend[s] on to . . . deliver materials or services to [the insured] . . . [a]ccept [the insured’s] products or services . . . [and] [a]ttract customers to [the insured’s] business.”
Sue and Labor Coverage
Finally, the Policies provide what is commonly known as “Sue and Labor” coverage. These policies require the insured to “take all reasonable steps to protect the Covered Property from further damage,” and to keep a record of expenses incurred to protect the Covered Property for consideration in the settlement of the claim. These Policies do not exclude or limit losses from viruses, pandemics, or communicable diseases.
Plaintiffs seek coverage under the Policies for losses caused by the Coronavirus (“Covid-19”) pandemic. Plaintiffs allege that over the last several months, it is likely that customers, employees, and/or other visitors to the insured properties were infected with COVID19 and thereby infected the insured properties with the virus.
Plaintiffs allege that COVID-19 “is a physical substance,” that it “live[s] on” and is “active on inert physical surfaces,” and is “emitted into the air.
Plaintiffs further allege that the presence of Covid-19 “renders physical property in their vicinity unsafe and unusable,” and that they “were forced to suspend or reduce business at their covered premises.”
Closure Orders Trigger Coverage
In response to the Covid-19 pandemic, civil authorities in Missouri and Kansas issued orders requiring the suspension of business at various establishments, including Plaintiffs’ businesses. Those “Closure Orders,” the judge noted, have required and continue to require Plaintiffs to cease and/or significantly reduce operations at, and . . . have prohibited and continue to prohibit access to, the[ir] premises.”
Plaintiffs allege that the presence of Covid-19 and the Closure Orders caused a direct physical loss or direct physical damage to their premises “by denying use of and damaging the covered property, and by causing a necessary suspension of operations during a period of restoration.”
Plaintiffs allege that their losses are covered by the Business Income, Civil Authority, Ingress and Egress, Dependent Property, and Sue and Labor coverages discussed above.
Plaintiffs filed the lawsuit against The Cincinnati Insurance Company on April 27, 2020, then filed an amended complaint that asserts claims for a declaratory judgment and for breach of contract based on Case 6:20-cv-03127-SRB.
Missouri Business Interruption Cases advance, Judge rules
Judge Bough also noted in his ruling that the Merriam-Webster dictionary defines “direct” in part as “characterized by close, logical, causal, or consequential relationship.”
“Physical” is defined as “having material existence: perceptible especially through the senses and subject to the laws of nature.”
“Loss” is “the act of losing possession” and “deprivation.”
“Applying these definitions,” the judge wrote, “Plaintiffs have adequately alleged a direct physical loss. Plaintiffs allege a causal relationship between Covid19 and their alleged losses.” Plaintiffs further allege” he noted, that COVID-19 “is a physical substance,” and that it “live[s] on” and is “active on inert physical surfaces,” and is also “emitted into the air.”
The judge wrote that Covid-19 allegedly attached to and deprived Plaintiffs of their property, making it “unsafe and unusable, resulting in direct physical loss to the premises and property.”
Based on these allegations, the Amended Complaint plausibly alleges a “direct physical loss” based on “the plain and ordinary meaning of the phrase.”
Hence, the insurance company failed to have the business interruption cases dismissed.
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