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The Western District of Washington Dismisses All Pending Covid-19 Business Interruption Cases

On May 28, 2021, the United States District Court for the Western District of Washington issued an Order Granting Motions to Dismiss, which given various consolidations effectively dismissed 60+ COVID-19 Business Interruption cases, including in Germack v. The Dentists Insurance Company, Cause No. 2:20-cv-00616.

The Business Income Loss coverage in the policies issued by the multiple defendant insurers provides coverage for loss of business income due to a necessary suspension of operations because of “direct physical loss of or damage to the insured premises,” caused by a “covered cause of loss.”  The Court focused its analysis on whether COVID-19 has caused “direct physical loss of or damage to” the insured premises and whether virus exclusions operate to eliminate COVID-19 as a “covered cause of loss.”

Regarding the first issue, the Court engages in a thorough analysis of what it is that constitutes “direct physical loss of or damage to” insured property, paying particular attention to the distinction between the terms “loss” and “damage”.  As to the term “damage”, the Court rejected the argument that the average purchaser of insurance would believe that COVID-19 causes damage because it contaminates and therefore alters physical surfaces.  The Court ultimately agreed with other Courts throughout the country, holding as follows:

The Court rejects this interpretation of direct physical damage. As numerous courts have recognized, “COVID-19 hurts people, not property,” . . . as “the pandemic impacts human health and human behavior, not physical structures,”. . . The Court concludes that COVID-19 does not cause direct physical damage to property as the term is used in the insurance policies.

Regarding the term “loss”, the Court concluded that when combined with ‘direct’ and ‘physical’, “’loss’ means that the alleged peril must set into motion events which cause inability to physically own or manipulate the property, such as theft or total destruction.”  The Court further noted that interpreting the policy to require tangible dispossession is consistent with insurance law doctrine holding that all-risk policies are intended to cover damage to property rather than economic losses.

In regard to the applicability of the Virus exclusions, the Court first rejected the argument that there is somehow a distinction between a “virus” and a “pandemic.”  The Court then addressed the Plaintiff Group’s efficient proximate cause argument, finding that under Washington law, the efficient proximate cause of the Business Income losses was not the governmental proclamations, but the virus itself.  Finally, the Court rejected a regulatory estoppel argument, finding that it would not recognize a rule that the Washington Supreme Court has not adopted.

Honorable Barbara Rothstein’s Order, which can be accessed here, is amongst the most comprehensive in the nation, and is likely to serve as teaching material in law schools for years to come.
Lether Law Group represents The Dentists Insurance Company in the Germack matter, which was designated as a national class action for dentists impacted by COVID-19.

Lether Law Group is also currently representing several other insurers in COVID-19 business interruption litigation in state, federal, and tribal courts in Washington, Oregon, California, and Pennsylvania amongst others. If you would like to discuss or have any questions about COVID-19 business interruption claims and/or litigation, please feel free to contact our office.

COVID-19 Business Interruption Case Law: The Western District of Washington Denies Plaintiffs’ Motions to Certify Questions to the Washington State Supreme Court

COVID-19 Business Interruption Case Law: The Western District of Washington Denies Plaintiffs’ Motions to Certify Questions to the Washington State Supreme Court

In February of 2021, Plaintiffs in 10 consolidated cases before the United States District Court for the Western District of Washington, including in Germack v. The Dentists Insurance Company, Cause No. 2:20-cv-00616, filed motions to certify questions to the Washington State Supreme Court regarding business interruption coverage for losses arising from the COVID-19 pandemic. The Plaintiffs’ group specifically sought to certify the following questions:

  • Does being physically deprived of the ability to use covered property directly as a result of the Governor’s shut-down orders constitute a “direct physical loss of” such property?
  • Does Washington’s efficient proximate cause rule require a factual determination of the predominant cause of an individual business’s loss, before a virus (or other) exclusion may be applied to bar coverage?

On April 23, 2021, Plaintiffs’ motion was denied. The Court began by noting the Plaintiffs’ argument that “the Washington Supreme Court has not yet addressed the question of whether COVID-19 and its resulting business closures and limitations causes ‘direct physical loss’ to an insured property,” and that the Court should defer to the Supreme Court to determine the issue. The Court rejected Plaintiffs’ argument in whole, noting that at least five other federal courts addressing similar issues have considered certification to their respective state supreme courts and found certification to be unnecessary:

This Court has at its command all the tools necessary to reach its decision, including the extensive briefing provided by the numerous parties in the consolidated cases on both questions Plaintiffs seek to certify.

Additionally, the Court found “several other strong federal interests weigh against certification,” including the constitutional provisions for diversity for out-of-state parties, the number of putative class actions filed under the Class Action Fairness Act of 2005, and the unjustifiable delay and expense that would be incurred if certification was allowed. The Court ultimately denied Plaintiffs’ motion for certification, finding that Plaintiffs’ questions “do not present such unique and exceptional issues as to warrant certification.”

Lether Law Group represents The Dentists Insurance Company in the Germack matter, which is designated as a national class action for dentists impacted by COVID-19. TDIC’s Motion for Summary Judgment on the coverage issue is currently pending before the Court as is a Motion for Dismissal of the Class Allegations.

Lether Law Group is also currently representing several other insurers in COVID-19 business interruption litigation in state, federal, and tribal courts in Washington, Oregon, California, and Pennsylvania amongst others. If you would like to discuss or have any questions about COVID-19 business interruption claims and/or litigation, please feel free to contact our office.

The above article is an opinion based on various resources such as industry knowledge and is not to be construed as legal advice or to be used as such. If you require legal advice or would like to inquire further about the information contained in this article, please feel free to contact our office directly.

COVID-19 Litigation Update

COVID-19 Litigation Update
Lether Law Group represents The Dentists Insurance Company (TDIC) as national coordinating counsel in COVID-19 related business interruption litigation in a number of jurisdictions throughout the United States. We are happy to announce the dismissal of one such action in the Eastern District of Pennsylvania.

 

In KesslerDental Associates, P.C. v. The Dentists Insurance Company, Cause No. 2:20-cv-03376-JDW, Honorable Joshua D. Wolson granted TDIC’s Motion to Dismiss finding that the COVID-19 pandemic and the governmental and societal response thereto does not trigger the business interruption coverages in the TDIC policy. Summarizing his decision, Judge Wolson stated the following:
“The Covid-19 pandemic might be unprecedented, particularly in its impact on businesses large and small. But it is not a writ for the Court to rewrite the Policy to which Kessler Dental and Dentists Insurance agreed. That Policy does not provide coverage for the losses that Kessler Dental has suffered.”

Kessler Dental sued TDIC claiming that TDIC wrongfully denied coverage for business income losses sustained as a result of the pandemic and the State of Pennsylvania’s shutdown orders. The Court, “at the risk of being labeled anti-Dentite”, citing to The Yada Yada Seinfeld episode from 1997, held that the TDIC virus exclusion operates to defeat coverage.

The TDIC virus exclusion precludes coverage for “loss or damage, including economic loss” caused by a virus. The Court found, simply, that the language is not ambiguous and applies to the COVID-related claims. Kessler attempted to overcome the virus exclusion by claiming that the business income losses that it sought were not “loss” or “damage”. The Court rejected this argument based on the plain language of the policy and Pennsylvania’s clear law regarding policy construction and interpretation.

Kessler also argued that the Court should bar TDIC’s reliance on the virus exclusion based upon a regulatory estoppel theory. Kessler argued that ISO and AAIS made false representations to the Pennsylvania Insurance Commissioner in 2006 when proposing the virus exclusion. The Court rejected this argument for two reasons. First, the Court held that Kessler had failed to allege that ISO or AAIS was representing TDIC in making any regulatory representations. Second, the Court held that Kessler had failed to allege any inconsistent statements.
“But even if the Court were to attribute those trade groups’ statements to Dentists Insurance, Kessler Dental does not plead any inconsistency. it alleges that ISO and AAIS made statements in 2006 representing that property policies were not intended to cover virus-related losses. Dentists Insurance takes the same position here today as the ISO and AAIS did in 2006; it argues that the Virus Exclusion bars coverage. Thus, regulatory estoppel does not apply, even if, as Kessler Dental claims, the insurance trade groups made statements to regulators in 2006 that were at odds with the then-current state of the law.”

The Court went on to further analyze the specific Business Interruption Coverages – Business Income Loss, Extra Expense, Civil Authority – finding that even in the absence of the virus exclusion, the coverages are not triggered. Importantly, the Court found that the virus and the governmental response thereto did not cause “direct physical loss of or damage to” the insured premises. Notably, the Court found that Kessler was never actually shut down. Pursuant to the governor of Pennsylvania’s business shutdown order, dental practices were not actually closed, but were limited to performing emergency procedures.

Below is a link to the complete Order of the Court.

Order of the court

TDIC was represented by Tom Lether and Eric Neal as national coordinating counsel and was represented locally by Michael Smith and Marc Kamin of the Stewart Smith law firm in Philadelphia.

To the extent that you have any questions about any COVID-19 related matters, please feel free to contact Lether Law Group at any time.

The above article is an opinion based on various resources such as industry knowledge and is not to be construed as legal advice or to be used as such. If you require legal advice or would like to inquire further about the information contained in this article, please feel free to contact our office directly.

COVID-19 Litigation Update

As we have recently reported, the clear trend in the United States Courts is towards finding that the typical Business Interruption (BI) coverages in U.S. commercial property policies will not be triggered by the COVID-19 pandemic.  Thus far, the majority of the decisions on this coverage issue have gone in favor of the insurance industry.Interestingly, on Tuesday, September 15, 2020, the High Court of Justice for the Business and Property Courts in Great Britain issued a ruling in a “test case” relating to 370,000 British BI claims.  In a lengthy opinion authored by Lord Justice Flaux (pictured below in the traditional attire of the Queen’s Bench), the High Court found that the policy forms at issue extended BI coverage for losses related to the COVID-19 pandemic.

Fortunately, this ruling from across the pond is unlikely to have much impact on the ongoing litigation of this dispute in the U.S.  That is because the policy forms that the industry presented to the High Court in the “test case” included a coverage for losses related to the spread of infectious disease.  Lord Flaux found that most – though not all – of the policy forms would provide coverage.  Because it was a “test case” there was not any specific finding of coverage for any individual insured.  Rather, the decision provides the manner in which insureds should present their claims depending on the forms or combination of forms in each policy.

Perhaps the most interesting aspect of this ruling is the contrast in how the U.S. and U.K. markets reacted to the early 2010’s SARS outbreak.  In the more risk-averse U.S. market, the industry response to SARS was to quickly adopt virus exclusions.  In the handful of rulings on COVID-19-related BI coverage that we have seen to date, it appears that the courts in the U.S. will enforce that exclusion.

In the U.K., the market responded to SARS by offering infectious disease coverage.  The insurers offering that coverage have obviously had a decade to collect the premiums that go with it.  However, according to the ruling of the High Court, it appears that those insurers will now be required to pay the claims of a broad cross-section of British businesses.  Only time will tell which market had the better strategy for dealing with coverage issues associated with the current global pandemic.

As always, if you would like to discuss the issues in this newsletter or any other matter, please feel free to contact Lether Law Group at any time.

The above article is an opinion based on various resources such as industry knowledge and is not to be construed as legal advice or to be used as such. If you require legal advice or would like to inquire further about the information contained in this article, please feel free to contact our office directly.