Hunton Insurance Recovery Blog

A Washington state court in The Board of Regents of the University of Washington v. Employers Insurance Company of Wausau, No. 22-2-15472-1, recently held that the University of Washington has made a plausible claim for coverage for losses sustained as the result of the outbreak of the COVID-19 pandemic under Washington’s “loss of functionality” test.

Sanctions are an extreme remedy; frequently sought, but seldom granted.  Such was the case in Hunton Andrews Kurth LLP’s action on behalf of hotel and casino, Treasure Island, LLC (“Treasure Island”), against Affiliated FM Insurance Company (“AFM”) in federal court in Nevada, where AFM “hid” documents which refute the insurer’s defense on the central disputed issue in Treasure Island’s case—and many more actions seeking insurance coverage for losses arising from the COVID-19 pandemic.  A copy of the sanctions order can be found here.

On February 6, 2023, The Claims Journal highlighted a letter by members of Hunton’s insurance team, submitted on behalf of United Policyholders, to the California Supreme Court, which alerts the Court to the fundamental infirmities in the “standard” expounded by the insurance industry in COVID-19 business interruption litigations nationwide. The letter was issued to assist the Court in addressing a question certified from the US Court of Appeals for the Ninth Circuit, in Another Planet Entertainment, LLC v. Vigilant Insurance Co, asking whether the actual or potential presence of the COVID-19 virus on an insured’s premises “constitute direct physical loss or damage to property” for purposes of coverage under a commercial property insurance policy.

One of the threshold issues in COVID-19 insurance coverage cases that have been brought across the country is whether the policyholder’s allegations meet the applicable pleading standard in alleging that the virus caused physical loss or damage. In many cases, the courts have gotten it wrong, effectively holding policyholders to a higher standard than required. But recently, a California federal judge righted those wrongs by acknowledging the correct pleading standard in that case, which is whether the allegations state a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). The Court, here, correctly recognized that the policyholder, the Los Angeles Lakers, met that pleading standard when it alleged that the COVID-19 virus can cause physical loss or damage by physically altering property.

As reported on this blog, policyholders have long been of the view that the presence of substances like COVID-19 and its causative virus  SARS-CoV-2, which render property dangerous or unfit for normal business operations, should be sufficient to trigger coverage under commercial all-risk insurance, as has been the case for more than 60 years.

However, many courts, federal courts in particular, despite decades of pro-policyholder precedent, have embraced the view that “viruses harm people, not [property].”  Thirty-one months after the start of the pandemic, the first state high court has gone in a different direction, according greater weight to pro-policyholder precedent.

It has taken a pandemic, but the fallacy of Couch’s “physical alteration” standard, accepted blindly by myriad courts nationwide in COVID-19 insurance disputes and beyond, has been revealed in an article co-authored by Hunton insurance partner, Lorie Masters, with substantial assistance from Hunton insurance associate, Rachel Hudgins.  The article, which received final publication in the American Bar Association’s TIPS Law Journal on October 26, 2021, makes a critical analysis of the landscape of judicial authority that existed when 10 Couch on Ins. § 148:46 (3d ed. 1998), the edition of Couch in which the standard first appeared, was published in the late 1990s.  The article then traces the evolution of that landscape through the beginning of the COVID-19 pandemic, when courts nationwide (predominantly federal courts), seized upon Couch’s standard as though it were a constitutional mandate. But as the article reveals, the standard is flawed, and thus the decisions that rely on it, infirm.

Court dockets, both in the state and federal court systems, have seen a massive influx of COVID-19 business interruption insurance cases since the pandemic began in March of 2020.  More recently, cases have been moving more expeditiously through the federal courts, and the circuit courts are starting to issue decisions. Most recently, the Ninth Circuit has spoken and its decisions provide important guidance for policyholders with pending COVID-19 coverage cases in California federal courts.

On Tuesday, a New Hampshire trial court awarded summary judgment to the owner of scores of hotels after finding that the hotels sustained covered “physical loss of or damage to” insured property caused by the pandemic presence of COVID-19 and its viral agent, SARS-CoV-2. The merits ruling is yet another recent victory for policyholders who continue to make headway against an early wave of insurance company dismissals, most of which, unlike the ruling on Tuesday, never considered evidence in support of their decisions.

New Jersey’s highest court heard arguments Monday in the appeal of a ruling that the New Jersey Transit Corp.’s (“NJ Transit”) insurers are required to insure $400 million of water damage loss caused by Hurricane Sandy.

The matter stems from an insurance claim NJ Transit made after the super storm rocked the East Coast in 2012. NJ Transit claimed over $400 million in losses as a result of damage to its tracks, bridges, tunnels and power stations. In response, its tower of property insurers took the position that a $100 million flood sublimit applied to limit NJ Transit’s recovery under its insurance tower, not the policy’s $400 million overall limits.

In a resounding victory for policyholders, a North Carolina court ruled that “all-risk” property insurance policies cover the business-interruption losses suffered by 16 restaurants during the COVID-19 pandemic.  North State Deli, LLC v. Cincinnati Ins. Co., No. 20-CVS-02569 (N.C. Sup. Ct., Cty. of Durham, Oct. 7, 2020).  This is the first judgment in the country to find that policyholders are, in fact, entitled to coverage for losses of business income resulting from the COVID-19 pandemic.  Equally important, the decision illustrates that a proper analysis of the operative policy provisions requires this result.

As we reported in a prior blog, on August 14, the Judicial Panel on Multidistrict Litigation rejected plaintiffs’ request for a consolidation of all COVID-19 insurance coverage federal litigation, agreeing to consider mini-MDLs as respects five specific insurers, which accounted for roughly one-third of the federal cases. On October 2, the Panel rejected the concept of mini-MDLs as respects four of these five insurers and accepted an MDL for the fifth insurer.

At the outset, the Panel agreed with plaintiffs that each of the proposed mini-MDLs presented common legal and factual ...

Earlier this year, lawyers for plaintiffs applied to the MDL Panel for consolidation of all COVID-19 business interruption cases in federal courts throughout the country.  On August 12, the Panel rejected plaintiffs’ requests for a single consolidation but requested briefing on the possibility of mini-MDLS as respects five of the insurers that accounted for approximately one third of these cases: Lloyds (26 actions), Cincinnati (70 actions), Hartford (130 actions), Society Insurance (24 actions) and Travelers (45 actions).  On Thursday, September 24, the Panel held a nearly three-hour hearing.

Over the past couple of months, we have written on decisions by various European insurers to pay policyholders for their COVID-19 related losses. That positive trend is now moving across continents.

We previously reported on the July 30 argument before the MDL Panel regarding plaintiffs’ motion to consolidate more than 275 COVID-19 Business Interruption cases.

On July 30, the Judicial Panel on Multidistrict Litigation held a Zoom hearing on a motion filed by plaintiffs’ lawyers to consolidate hundreds of business interruption claims filed across the country. The Panel permitted a number of plaintiffs’ counsel and two insurers’ counsel to each argue for 3 uninterrupted minutes and then respond to questions.

Last month we wrote a piece concerning AXA’s agreement to pay COVID-19 related business interruption claims by a group of restaurants in France after a court ruled that the restaurants’ revenue losses resulting from COVID-19 and related government orders were covered under its insurance policies. AXA reportedly has already agreed to pay over 200 COVID-19 related claims.

AXA, one of the biggest insurance companies in the world, has agreed to pay COVID-related business interruption claims by a group of restaurants in Paris after a court ruled that the restaurants’ revenue losses resulting from COVID-19 and related government orders were covered under AXA’s policies.

Evolving government orders will affect the way many retail businesses operate and the potential insurance available for losses and expenses. For instance, on April 28, 2020, the State Health Officer of Alabama issued an Order allowing some businesses to reopen, but under strict sanitation and social distancing guidelines. Retail stores, for example, will be allowed to reopen but must maintain a maximum occupancy rate of 50%. While a partial opening may restore some level of activity, because these businesses must operate at a reduced capacity, their operations will not return to normal. Beyond that, while some states are loosening social distancing requirements, others have extended them. Indeed, on the same day that Alabama announced its partial reopening, the Governor of Massachusetts extended the closures of non-essential businesses. Regardless of location, many businesses will likely sustain substantial losses because of these orders, and will incur expenses to comply with evolving requirements and operational guidelines.

On Wednesday, my colleagues Walter Andrews and Katie Miller published a timely article in Florida’s Daily Business Review discussing the availability of insurance coverage for continuing losses suffered by businesses directly and indirectly affected by Hurricane Irma.  The article, titled After Irma: Is Your Business Entitled to Insurance Coverage for Additional Lost Profits?, has equal application to those affected by Hurricanes Maria and Harvey.  As the article explains, continuing business income losses may be covered under common property insurance policy provisions.  Where they are not, the article provides insightful advice for policyholders as they approach policy renewal so they can fill gaps that may exist in their current coverages.  A copy of the article can be found here.