On August 12, 2020, a Missouri District Court denied an insurance carrier’s motion to dismiss and rejected its arguments that COVID-19 is not covered under an “all-risk” property insurance policy without a virus exclusion. Although a ruling on the merits of the case has not been issued, in Studio 417, Inc., et al. v. The Cincinnati Insurance Company, Case No. 20-cv-03127-SRB, District Court Judge Stephen R. Bough ruled in favor of defendant restaurants and hair salons in Missouri. The “all-risk” policies at issue did not define “physical loss” or “physical damage” and did not include any exclusion for losses caused by viruses or communicable diseases. 

The plaintiffs sought Business Income, Civil Authority, Ingress and Egress, Dependent Property, and Sue and Labor coverages under their respective policies for losses caused by the COVID-19 pandemic, alleging that:

• Over the past several months, it was likely that customers, employees and/or other visitors to the insured properties were infected with COVID-19 and thereby infected the insured properties with the virus.
• COVID-19 “is a physical substance,” that it “live[s] on” and is “active on inert physical surfaces,” and is “emitted into the air.”
• The presence of COVID-19 “renders physical property in their vicinity unsafe and unusable,” and that they “were forced to suspend or reduce business at their covered premises.”
• Lastly, the presence of COVID-19 and the Closure Orders caused a direct physical loss or direct physical damage to their premises “by denying use of and damaging the covered property, and by causing a necessary suspension of operations during a period of restoration.” 

The Ruling
In his ruling denying the insurer’s motion to dismiss, Judge Bough first held that plaintiffs adequately alleged a direct “physical loss” under the policies because relying on the plain meaning of physical loss, plaintiffs alleged a causal relationship between COVID-19 and their alleged losses. Judge Bough agreed with the plaintiffs’ allegations in the complaint that COVID-19 “is a physical substance,” that it “live[s] on” and is “active on inert physical surfaces,” is also “emitted into the air” and had attached to and damaged plaintiffs’ property in a manner that left it unsafe. Based on these allegations, the court held that the plaintiffs plausibly alleged a “direct physical loss” (Business Income coverage) based on “the plain and ordinary meaning of the phrase” sufficient to withstand the insurer’s Rule 12(b)(6) motion to dismiss. 

Next, Judge Bough ruled that plaintiffs plausibly stated a claim for Civil Authority coverage because they adequately alleged that access to their businesses was prohibited pursuant to the Closure Orders. Judge Bough also held that the plaintiffs plausibly stated a claim for Ingress and Egress coverage because plaintiffs alleged that both COVID-19 and the Closure Orders rendered the premises unsafe for ingress and egress. 

Further, Judge Bough held that the plaintiffs plausibly stated a claim for Dependent Property coverage because they adequately alleged that they suffered a loss of materials and services and lack of customers as a result of COVID-19 and the Closure Orders. 

Lastly, the court held that the plaintiffs adequately stated a claim for Sue and Labor coverage in reference to their compliance with the Closure Orders and suspension of operations in that they “incurred expenses in connection with reasonable steps to protect Covered Property.” 

Based on his analysis, Judge Bough will allow the suit to proceed to discovery. 

Read the Order.  

For a Michigan ruling on this topic, see our July 23, 2020, article.

For a Washington, D.C. ruling on this topic, see our August 14, 2020, article.