Two more federal court judges in the Northern District of Ohio have weighed in on whether insurance carriers in the cases pending before them must cover claims for damages caused by the COVID19 pandemic. In both cases, the courts have ruled in favor of the insurers.
Both Ceres Enterprises, LLC vs. Travelers Insurance Company, Case No. 1:20cv1925 (N.D. Ohio Feb. 18, 2021) and Brunswick Panini’s, LLC et al. vs. Zurich American Insurance Co., Case No. 1:20cv1895 (N.D. Ohio Feb. 19, 2021) found that the language “direct physical loss of or damage to property” in the policies at issue was not ambiguous and that in order for coverage to be required, the business plaintiffs needed to prove either 1) tangible damage, or 2) permanent alteration of property as well as physical deprivation of possession, enjoyment, or use. They also found that the virus exclusion and/or microorganism exclusions in the policies applied whereby negating coverage.
Ceres Enterprises LLC vs. Travelers Insurance Company involved a lawsuit brought by Plaintiff Ceres Enterprises, LLC, which operates hotels in Ohio, Indiana, and Minnesota. When it sustained losses due to the pandemic, Plaintiff filed claims for lost business income under its insurance policy with Defendant Travelers Insurance Company. Plaintiff, suing on behalf of itself and on behalf of a putative class of other hospitality businesses, sought a declaratory judgment, as well as damages for claims of breach of contract and breach of the covenant of good faith and fair dealing (insurance bad faith).
In its Complaint, Ceres Enterprises LLC alleged that the pandemic and closure orders of the federal and state governments caused a “direct physical loss of Plaintiff’s and the Class Members’ properties.” Plaintiff further alleged that Defendant denied its claims based on an inapplicable “virus/bacteria exclusion” that does not expressly exclude coverage for a pandemic. In moving for dismissal of the case, Defendant argued Plaintiff was not entitled to coverage because it had not suffered a “covered cause of loss” under the policy, which required direct physical loss or damage.
Like other similar cases in Ohio and across the country, the arguments in Ceres centered on whether the policy language and terms were ambiguous, and the meaning of the language “physical loss of or damage to” property in the insurance policies Defendant wrote and issued. While the policy at issue required physical loss of or damage to property to trigger the Business Income and Extra Expense Coverage and Civil Authority Coverage it did not define physical loss of or damage to property. In granting Defendant’s motion to dismiss, Judge Philip Calabrese found that the policy at issue was not ambiguous and that the phrase “physical loss of or damage to” property consists of common words that must “be given their ordinary meaning unless manifest absurdity results, or unless some other meaning is clearly evidenced from the face or overall contents of the instruments.”
The Court also placed a lot of meaning on the policy’s inclusion of a “Period of Restoration,” finding that reading “direct physical loss of or damage to” property to include loss of intended use as Plaintiff urged and not actual physical loss or damage would render the Period of Restoration nonsensical or meaningless because no repair, rebuilding, or replacement of the covered property would need to occur. It also found that any government shut down order was due to the virus and there was a virus exclusion in the policy.
In rendering its decision, the Ceres Court referenced three earlier decisions by the N.D. of Ohio. First, a decision by Judge Barker in Santo’s Italian Café LLC v. Acuity Insurance Co., No. 1:20cv01192, 2020 WL 7490095 (N.D. Ohio, Dec. 21, 2020) in which the Court also found in favor of the Insurer. In Santo’s Italian Café, the Court dismissed the claims of a restaurant owner for coverage of losses due to COVID19 under its business interruption insurance policy. Again, the decision turned principally on the meaning of the phrase direct physical loss of or damage to property. Next, the Ceres Court referenced the decision of Judge Polster in Henderson Road Restaurant Systems, Inc. dba Hyde Park Grille, et al. v. Zurich American Ins. Co., No. 1:20cv1239, 2021 WL 168422 (N.D. Ohio Jan. 19, 2021) which found in favor of the insureds. In Henderson Road, Judge Polster granted summary judgment to the insured, owners, and operators of restaurants who brought breach of contract and declaratory judgment claims following denial of insurance coverage relating to losses sustained as a result of the COVID19 pandemic. In finding in favor of the plaintiff restaurant chain, despite the fact that the policy at issue excluded coverage for damages caused directly or indirectly by viruses, Judge Polster in Henderson Road found that when strictly construed in favor of the insured, the policy at issue provided coverage for loss of business income due to the suspension of plaintiffs’ operations by direct physical loss of or damage to property at the premises caused by government closure orders. After a careful review of the plain and ordinary meaning of the policy language at issue in Ceres, the Ceres Court stated that it was “not persuaded by the reasoning in Henderson Road or that decision’s determination that the policy language at issue (i.e. the meaning of the phrase direct physical loss of or damage to property) is ambiguous. The Ceres Court also raised practical and legal problems raised by the Henderson Road decision asking if insurance covers a loss for which the insured also receives governmental assistance through one of the many federal or State Covid relief programs, has the insured received a double recovery, or does the insurer have a subrogation interest? Lastly, the Ceres Court referenced the N.D. Ohio case of Neuro-Communication Services, Inc. v. Cincinnati Insurance Company, Case No. 4:20cv01275 (N.D. Ohio Jan. 19, 2021), in which Judge Benita Pearson certified a question similar to the one dispositive of the Ceres decision to the Supreme Court of Ohio for review. The specific question certified to the Supreme Court of Ohio is:
• Does the general presence in the community, or on surfaces at a premises, of the novel coronavirus known as SARSCoV2, constitute direct, physical loss or damage to property; or does the presence on a premises of a person infected with COVID19 constitute direct physical loss or damage to property at that premises?
In finding that the question certified is relevant to the Ceres case, Judge Calabrese declined to again certify the question because 1) no party had requested that it do so, 2) Judge Pearson had already certified the question, and 3) he found no need to wait many months to see if the Supreme Court of Ohio will weigh in on the question.
The second new decision out of the N.D. of Ohio is Brunswick Panini’s, LLC et al. vs. Zurich American Insurance Co. rendered by Senior Judge Christopher A. Boyko. Brunswick Panini’s involved Plaintiffs’ Property Portfolio Protection Policy for their fullservice restaurant/bar facilities in Kent and Brunswick, Ohio. After Plaintiffs made a claim for Business Income Loss and Extra Expense and Civil Authority Coverage due to the COVID19 coronavirus pandemic, Defendant denied coverage. Plaintiffs brought claims for Declaratory Relief, Breach of Contract, and Breach of Implied Covenant of Good Faith and Fair Dealing on behalf of themselves and all individuals and entities through the United States who, from January 1, 2020 to the present, have been insured by Commercial and/or Business Owner Policies issued by Defendant and were denied coverage due to COVID19. They too filed claims for coverage after being shut down by government orders.
Again, finding that Ohio law governs and that the Supreme Court of Ohio has not weighed in yet on the issue, the Brunswick Panini Court turned to decisions of Ohio’s lower courts. Again, the issue turned on whether or not the policy at issue was ambiguous. Again, the Court decided that “in insurance policies, as in other contracts, words and phrases are to be given their plain and ordinary meaning unless “manifest absurdity results or unless some other meaning is clearly intended from the face or overall contents of the contract.” Again, the Court found that the provisions of the policy at issue precondition coverage on “direct physical loss of or damage to” the covered property. Again, the Court found that Plaintiffs have not and cannot allege that they suffered “direct physical loss or damage” as such a loss necessitates tangible damage, or permanent alteration of property and physical deprivation of possession, enjoyment, or use of their premises. In dismissing the case on motion of Defendant, the Court concluded that a plain reading of the Zurich Property Coverage Policy mandates the conclusion that there is no coverage for Plaintiff’s claimed business losses or damages because there was no direct physical loss of or damage to their Property; and that, in any event, coverage for Plaintiff’s losses or damages is excluded by operation of the Microorganism Exclusion because, said the Court, COVID19 is a virus; and therefore, a microorganism.
The cases cited herein are just some of the hundreds of business interruption cases filed against insurers in state and federal courts across Ohio. The Supreme Court of Ohio may bring more clarity to the law should it decide to accept jurisdiction of the question certified to it by the N.D. of Ohio in Neuro-Communication Services, Inc. v. Cincinnati Insurance Company. Both sides submitted briefs for and against acceptance of the certified question earlier this month in Ohio Supreme Court Case No. 20210130.