Federal Court Decisions Could Cause Surge in Pandemic-Related Insurance Cases in Ohio
Date: January 27, 2021
Ohio could become a hotbed of COVID-19-related insurance coverage litigation following two recent federal court decisions, which were coincidently issued the same day.
Judge Dan Aaron Polster of the U.S. District Court for the Northern District of Ohio ruled on January 19 that Zurich American Insurance Co. breached its obligation to provide lost business income coverage to policyholder Henderson Road Restaurant System and several related restaurants (“the plaintiffs”) following losses caused by COVID-19 shutdown orders, finding that the plaintiffs’ policy could reasonably be interpreted to cover the temporary loss of use of property.
The plaintiffs began experiencing trouble in March 2020 when government orders limited them to providing takeout, curbside pickup or delivery services — options the restaurants had virtually never offered. As a result, nearly all the eateries ceased operations immediately. Shortly after Zurich denied their insurance claim in late April, the plaintiffs filed suit in an Ohio state court. Zurich removed the case to federal court, and the two sides filed competing motions for summary judgment in October.
Zurich argued that it was entitled to summary judgment because tangible structural damage to the restaurants was necessary to satisfy the plaintiffs’ policy’s threshold requirement that business income losses be tied to “direct physical loss of or damage to” property. Zurich took the alternative position that, even if the plaintiffs could meet this threshold, coverage would separately be barred by viral and/or “loss of use” exclusions.
Judge Polster rejected Zurich’s arguments, holding that the plaintiffs showed that they suffered a covered loss because the various state and local pandemic closure orders temporarily prohibited them from offering in-person dining, which was the cornerstone of their business model. He also held that neither exclusion precluded coverage, agreeing with the plaintiffs that the viral exclusion did not apply because the losses were caused by government shutdown orders, not COVID-19 itself, and ruling that the loss of use exclusion was not applicable because it could not be reconciled with the language of the business income provision, which could reasonably be interpreted to extend coverage for the policyholder’s loss of use of its properties.
Though the decision was based on the specific language of the policy at issue, it will likely pave the way for additional pandemic-related business income loss litigation. Judge Polster joins a small group of judges nationwide in finding that a commercial property policy can reasonably be interpreted to cover the temporary loss of use of property resulting from mandatory COVID-19 government shutdown orders.
The same day Judge Polster issued his decision, Judge Benita Y. Pearson, also of the Northern District of Ohio, certified the following question to the Supreme Court of Ohio: Can the direct or indirect presence of COVID-19 constitute direct physical loss or damage to property for purposes of insurance coverage? In the case before Judge Pearson, after temporarily ceasing operations in response to COVID-19 and Ohio’s state-mandated closures, the plaintiff, an audiology practice, submitted an insurance claim pursuant to its “all-risk” policy, which did not contain a virus or pandemic exclusion. The insurer denied the claim, arguing that “[t]he claim does not involve direct, physical loss to property at your premises caused by a Covered Cause of Loss.” The plaintiff filed suit, seeking to certify a nationwide class of insureds who have also been denied coverage for pandemic-related losses.
In certifying the question, Judge Pearson noted that “[d]ozens, if not hundreds of cases seeking coverage for losses related to the pandemic” have been filed in Ohio’s state and federal courts and that “differing interpretations of Ohio contract law by different courts” could create inconsistent results for similarly situated litigants.
The pending Supreme Court decision on the certified question is a very high-stakes proposition. If the court follows Judge Polster’s lead, Ohio could see a flood of insurance recovery litigation related to the pandemic.
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