U.S. Supreme Court Urged to Overturn Eleventh Circuit Decision Limiting COVID-19 Property and Business Insurance Claims

Non-profit advocacy group United Policyholders, represented by Hunton Andrews Kurth LLP, recently filed an amicus brief supporting a request for the U.S. Supreme Court to review the Eleventh Circuit’s decision in Mama Jo’s, Inc. d/b/a Berries v. Sparta Insurance Co., a case with significant implications for property and business insurance claims arising out of COVID-19.  A review of rulings in such cases shows that courts have granted 89% of motions to dismiss and other dispositive motions filed by insurers in federal courts.  In contrast, rulings favor policyholders in more than half of these cases filed in state courts.

United Policyholders argues in its brief that the Eleventh Circuit incorrectly decided the question of whether or not the impact of construction dust and debris on a restaurant’s operations causes a “direct physical loss” triggering coverage, specifically by ignoring the governing state law (on policy-interpretation rules, on the meaning of “direct physical loss”) and thus violating the U.S. Supreme Court’s rules set forth under the Erie Doctrine.  In a point of black-letter law, federal courts sitting in diversity jurisdiction – as was true in Mama Jo’s, and is true in the federal cases addressing COVID-19 business-interruption insurance coverage – must apply the substantive law of the state in which they sit, or predict how the state’s highest court would resolve the issue. 

While the underlying dispute in Mama Jo’s does not involve damages caused by the ongoing pandemic, the Eleventh Circuit’s decision rejecting coverage is nevertheless being used by federal courts across the country to deny COVID-19 related business and property insurance claims.  As United Policyholders argue, federal courts should conduct a proper, Erie-based analysis of relevant state law and the policy language – and not simply follow other federal decisions, creating, improperly, a federal common law of insurance, in contravention of the Erie Doctrine. 

Under a proper analysis, most federal courts would be constrained to find that a substance like COVID-19, which transforms property (air and surfaces) from a safe and useable condition to a dangerous, unhealthy and potentially deadly condition, causes “direct physical loss [and damage]” to property, just the same as other deleterious substances like ammonia, smoke, mold and asbestos.  Before this pandemic, courts across the country construed the phrase “direct physical loss of or damage to” (and its permutations) to encompass more than structural injury to property and to include loss of use of covered property, a point state courts, the arbiters of insurance law, more commonly are recognizing than their federal counterparts. 

The brief also demonstrates that, in granting insurer motions to dismiss in these cases, federal courts often also are usurping the role of the fact finder and inappropriately making factual determinations on motions to dismiss. Instead of applying the U.S. Supreme Court’s Twombly-Iqbal plausibility standard, federal courts are routinely disregarding factual allegations that COVID-19 causes direct physical loss of and/or damage to the insureds’ property. By making factual determinations different from the allegations in a complaint, these courts are commandeering the jury’s role.

A copy of the amicus brief is available here.

The Hunton Andrews Kurth team representing United Policyholders includes Lorelie S. Masters, Walter J. Andrews, Andrea DeField, Michael S. Levine, Nicholas D. Stellakis, Shauna R. Twohig and Cameron L. Davis.