Insurer prevails in COVID-19-related business interruption ruling
The 10th Cir. joins a growing list of appeals courts siding with Insurers in COVID-19 business interruption cases.
It’s been a difficult time for insurers and policyholders when it comes to determining liability and coverage for business interruption claims during the pandemic. The questions frequently revolve around local, state and federal orders to close a variety of businesses as the number of cases rose in early 2019. Now the courts are deciding many of these cases.
The U.S. Court of Appeals for the 10th Circuit is the latest court to find that an insurance company had no duty to cover business losses stemming from COVID-19 shutdown orders.
Goodwill Industries of Central Oklahoma Inc., a nonprofit that provides community services and operates retail stores and donation centers in the central portion of the Sooner State, suspended its operations on March 25, 2020, to comply with state and local orders regarding the pandemic, according to the appellate court’s opinion.
Goodwill sued its insurer, Philadelphia Indemnity Insurance Co., in May 2020, under its commercial lines policy, arguing that its losses were covered under several of the policy’s provisions, including “business interruption, extra expense, and interruption by civil authority.” The nonprofit organization further claimed that the policy’s virus exclusion was invalid because Philadelphia failed to get consent from Goodwill to add the exclusion, court records show.
Judge David L. Russell, of the U.S. District Court for the Western District of Oklahoma, previously granted Philadelphia’s motion to dismiss, finding that the policy did not cover Goodwill’s loss and the policy’s virus exclusion barred coverage resulting from any virus or disease.
Goodwill appealed, but the circuit court also sided with Philadelphia on Tuesday.
“We affirm the district court’s orders (1) granting Philadelphia’s motion to dismiss and (2) denying Goodwill’s motion to alter or amend the judgment,” Judge Scott M. Matheson Jr. wrote on behalf of the 10th Circuit panel.
Judges Timothy M. Tymkovich and Gregory Phillips concurred, looking to recent decisions by sister circuits, such as the Ninth Circuit case Mudpie v. Travelers Cas. Ins. Co. of Am. and Santo’s Italian Cafe v. Acuity Ins. in the Sixth Circuit.
“Other courts have similarly construed the terms at issue here,” Matheson wrote. “Every circuit to address the issue has held that identical or nearly identical business income provisions did not cover losses covered by COVID closure orders.”
The 10th Circuit rejected Goodwill’s claims that the term “direct physical loss” encompasses “intangible loss and/or property rendered unusable for its intended purpose due to orders stemming from the COVID-19 pandemic.”
“Although the COVID orders temporarily restricted Goodwill’s use of its property, Goodwill never lost physical control of its buildings or merchandise from its stores,” Matheson wrote. “It thus was not deprived of its property. Nor did COVD destroy Goodwill’s property. The policy, therefore, did not cover its loss.”
Additionally, a period of restoration clause provides coverage “until property ‘should be repaired, rebuilt, or replaced’ or until the business resumes elsewhere assumes physical alteration of the property, not mere loss of use,” the court said, referencing the 8th Circuit’s ruling from earlier this year in Oral Surgeons v. Cincinnati Insurance.
“After suspending business due to COVID restrictions, Goodwill had nothing to repair, rebuild, or replace before it could resume operations,” Matheson wrote. “Nothing ‘physical’ happened to its property—Goodwill simply had to wait until the government lifted the restrictions.”
The court was also not swayed by Goodwill’s claims that the virus exclusion was invalid, finding that Philadelphia included an advisory to policyholders, alerting Goodwill to the virus exclusion in the 2019-20 policy renewal. Goodwill was not required to sign the exclusion, the court said.
“Even if the government COVID restrictions and the virus itself could be viewed as distinct causes of loss, the efficient proximate cause doctrine would still exclude Goodwill’s claim,” Matheson wrote.
Related:
NJ Federal Court finds virus exclusion applies in BI lawsuit