Insurers notch another win in COVID business interruption coverage battle
“A plain reading of the policy provides that the parties intended to exclude coverage for COVID-19 related losses like the losses plaintiff allegedly suffered in the immediate case," the court said.
Another ruling against a business seeking reimbursement of lost profits during the COVID-19 pandemic has been issued by a federal judge in Virginia.
Ace American Insurance Co. filed a motion to dismiss in the U.S. District Court for the Eastern District of Virginia, seeking to escape claims made by the Ida Cason Callaway Foundation, a nonprofit that owned and operated a resort located in Georgia called Callaway Gardens.
Callaway Gardens was affected by Georgia Gov. Brian Kemp’s April 2, 2020 order that forced all restaurants providing dine-in services to close their doors, along with gyms, theaters or other venues not providing “essential services.” The plaintiff argued that it suffered $1 million in pandemic-related losses.
The foundation originally filed the complaint in the Circuit Court of Richmond before it was removed by the defendants to federal court in May 2022. (The court noted that it has diversity jurisdiction because the plaintiff is based in Georgia and the defendant is based in Philadelphia.) The plaintiff amended the complaint after a motion to dismiss was granted, arguing Ace American had a contractual duty to cover their losses after they were forced to significantly reduce their in-person services.
In his Feb. 23 opinion, the policy at issue was described by U.S. District Judge Henry E. Hudson of the Eastern District of Virginia as an “all-risk policy,” meaning it provided broad, blanket coverage with specific exclusions. Included in the policy is business interruption coverage, which encompassed “loss of attraction.”
The contract stated that Ace American would insure loss “‘including Clean Up and Remediation, when there is an interruption or interference with the business of the Insured as a consequence of: Infectious or contagious disease (excluding Coronavirus 2019 COVID-19),’” according to the opinion.
Another section of the policy mentions a limited grant of coverage for losses due to interruption “‘as a result of the full or partial closure of the covered property by public authority ‘consequent upon’ the actual or suspected presence of ‘hazardous conditions.’”
This part of the policy was used by the plaintiffs to claim they were entitled to coverage by Ace American, although Hudson did not agree, finding the specific provision outlining business losses (Section 20(h)(1)) precludes the “general applicability” of Callaway’s evidence.
“On March 8, 2020, Plaintiff entered into a contract with Defendant with the intent to have the policy cover all foreseeable and unforeseeable risks except for those which were explicitly excluded,” Hudson wrote. “Although [Callaway] asserts coverage is warranted under Section 20(h)(4), the Court must construe the Policy as a whole, harmonizing all of its provisions and recognizing their context as well as the intentions of the parties.”
The judge also noted that concluding Ace American is obligated to cover Callaway’s business losses “would contradict well-established Virginia law and render the COVID-19 exclusion” meaningless.
Hudson relied primarily on two of the Eastern District Court’s own rulings, Central Laundry, LLC v. Illinois Union Ins. Co. from 2022 and State Farm and Cas. Co. v. Rollins from 2016.
In Central Laundry, a company sought coverage under its pollution policy for its revenue losses due to the pandemic. However, the court found there was a separate policy for indoor environmental conditions which differed from potential coverage for pandemic-related losses.
‘”As in Central Laundry, the policy here effectively signposts that ’hazardous conditions’ must be read to carry a distinct meaning from ’infectious or contagious disease,’” Hudson added. “A plain reading of the Policy provides that the parties intended to exclude coverage for COVID-19 related losses like the losses Plaintiff allegedly suffered in the immediate case.”
Counsel for Ida Cason Callaway, appellate attorney John P. O’Herron of Thompson McMullan, could not be reached for comment. Partner Attorney Stacey Elizabeth Rufe of Clyde & Co. in Richmond also could not be reached for comment.
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