A Federal Court in Missouri refused to dismiss a class-action lawsuit brought by Missouri and Kansas businesses seeking to invoke Business Interruption coverage from their insurance carrier. Class Representative Plaintiffs, Studio 417, a hair salon, and several named restaurants filed their Complaint against The Cincinnati Insurance Company ("Cincinnati") on April 27, 2020, asserting claims for declaratory judgment and breach of contract due to Cincinnati's refusal to provide Business Interruption coverage arising from the closure of the Plaintiffs' businesses as a result of Covid-19 and the related Missouri "Closure Orders," which suspended the operations of Plaintiffs' respective businesses. Cincinnati filed a motion to dismiss, alleging that the Plaintiffs failed to state a claim because the claimed losses were not covered by the respective policies.
Because the insurance policies at issue only cover "direct physical loss" or "direct physical damage," all Parties and the Court agreed that this term was critical to whether the businesses were entitled to coverage. Because the real property of each business did not suffer any "physical damage," the focus turned to whether the businesses suffered any "physical loss ," as conceptually distinct from "physical damage ." The insurance policies did not define the terms "direct physical loss" or "direct physical damage," which left the Court to turn to the Merriam-Webster Dictionary to give these words their plain meanings. In taking the Plaintiffs' factual allegations as true (as required when assessing a Motion to Dismiss), the Court applied a generous definition to "direct physical loss," finding that Plaintiffs sufficiently pled a "direct physical loss" by alleging that: 1) Covid-19 "lives on" and is "active on inert physical surfaces," and is "emitted into the air;" and 2) the physical property of the Plaintiffs' was exposed to, and infected by, Covid-19, making it uninhabitable, unsafe, and unusable. In citing supporting caselaw – and while acknowledging caselaw to the contrary – the Court emphasized the importance of the allegation that the property was actually exposed to, and infected by, Covid-19, as such an infection would make the premises uninhabitable and potentially equate to a physical loss of the property. As such, the Court refused to dismiss the case at this early stage. This analysis may be applicable in other jurisdictions to provide business owners with an outline of a claim sufficient to, at the very least, survive a motion to dismiss.
Despite the above, the Court was openly wary of the Plaintiffs' prospects for success on the merits, i.e., Plaintiffs' ability to adduce sufficient evidence to affirmatively prove the claim. The Court determined that the Plaintiffs had simply done enough to survive a Motion to Dismiss, leaving the door open to reconsider Cincinnati's argument:
The Court emphasizes that Plaintiffs have merely pled enough facts to proceed with discovery. Discovery will shed light on the merits of Plaintiffs’ allegations, including the nature and extent of COVID- 19 on their premises. In addition, the Court emphasizes that all rulings herein are subject to further review following discovery. Subsequent case law in the COVID-19 context, construing similar insurance provisions, and under similar facts, may be persuasive. If warranted, Defendant may reassert its arguments at the summary judgment stage.
While the Court is plainly apprehensive regarding the likelihood of Plaintiffs' success on the merits, Plaintiffs' case survives – for now.
This article provides an overview and summary of the matters described therein. It is not intended to be and should not be construed as legal advice on the particular subject.