Trends in COVID-19 Florida Insurance Coverage Litigation
Historically, nationwide insurance coverage issues that significantly affect the economy do not get resolved quickly. For those who lived through the long-term and complex insurance coverage issues surrounding asbestos liability and environmental liability, it comes as no surprise that COVID-19 insurance coverage litigation is far from being over. Business interruption and other losses arising from COVID-19 have sparked a wave of lawsuits that is spreading across the country. With almost 1,500 lawsuits filed across the United States seeking coverage for coronavirus-related property damage and more, trends are now emerging in pandemic insurance litigation.
A majority of the early lawsuits were filed by those working in industries that rely upon the provision of in-person services, including restaurants, hair salons, spas, and the entertainment industry. Many alleged significant losses resulting from city-wide shutdowns that prevented customers from accessing the physical locations of businesses. Many trends have emerged from courts in approximately 30 states that have issued decisions on early motions to dismiss as well as across the evolving body of caselaw, including the following:
- Insurers have prevailed on motions to dismiss approximately 85 percent of the time.
- Policyholders have obtained more favorable results in state courts compared to federal courts.
- When a court decides in favor of an insurer, it is most often based on the court’s conclusion that the policy requirement of “direct physical loss of or damage to” covered property has not been met.
- When courts decided in favor of insurers, the main reasoning was insurance policies contained applicable exclusions, including those related to viruses, microorganisms, contamination, and pollution, among others.
- Decisions have been mostly favorable for insurers in California, Florida, and Texas courts.
- When courts have ruled in favor of policyholders, it is largely because of an insufficient factual record necessitating more discovery before a dismissal motion could be entertained.
- When a virus exclusion is present, court decisions have tended to fall into one of three categories: (1) Dismissal based solely on the policyholder failing to prove “direct physical loss,” (2) Dismissal based on the policyholder failing to satisfy “direct physical loss” and the presence of a virus exclusion in the policy, and (3) Dismissal based solely on a virus exclusion in an insurance policy with the court not addressing the “direct physical loss” concern.
Many early decisions were rendered in Florida. In Mena Catering Inc., v. Scottsdale Insurance Co. in South Florida, a catering business policyholder sought coverage under a commercial property insurance policy for losses allegedly sustained due to COVID-19 interrupting business. The coronavirus was present in the insured’s property, which forced a shutdown. The policyholder also alleged the presence of the virus altered its property and it could not be repaired through a one-time disinfection. The court found these allegations insufficient and granted the insurer’s motion to dismiss with prejudice due to no evidence of a “direct physical loss.” In Carrot Love, LLC v. Aspen Specialty Insurance Co., a policyholder who owned three restaurants alleged COVID-19 was deposited on various surfaces in its establishments and its presence impaired the value, usefulness, and normal function of tables, countertops, and chairs, leading the policyholder to suffer “direct physical loss or damage.” Again, the judge in this case found the allegations failed to state a claim for coverage under the policy’s provisions that required “direct physical loss of or damage to” the insured property. The insurer’s motion to dismiss was granted. As many policyholders are unable to prove COVID-19 caused direct physical loss or damage to a property, insurers are often able to achieve dismissal.
Early wins have given insurance companies confidence that they may not have to afford coverage of losses arising from COVID-19. This early confidence might wane, however, as some newer cases have generated favorable outcomes for policyholders. While many dismissals arose out of cases in which a “virus exclusion” specifically precluded coverage, in cases where an insurance policy did not have a virus exclusion, roughly one third of the rulings (19 out of 59) have favored coverage of business losses. Policyholders and courts are now intensely focused on the specific content of virus exclusions. Policyholders believe coverage should not be denied simply because the word “virus” was included where it may not necessarily belong. In a recent Florida case, Urogynecology Specialist of Florida LLC v. Sentinel Ins. Co., Ltd., in which there was a virus exclusion added on to a list including fungi, wet rot, dry rot, and bacteria, the court held as follows:
“It is not clear that the plain language of the policy unambiguously and necessarily excludes Plaintiff’s losses. The virus exclusion states that Sentinel will not pay for loss or damage caused directly or indirectly by the presence, growth, proliferation, spread, or any activity of “fungi, wet rot, dry rot, bacteria or virus.” (Id.). Denying coverage for losses stemming from COVID-19, however, does not logically align with the grouping of the virus exclusion with other pollutants such that the Policy necessarily anticipated and intended to deny coverage for these kinds of business losses.”
While some insurance policies explicitly bar coverage for pandemics – including viruses or any agents that threaten human health – tacking on “virus” to an exclusion for something environmental does not always stand up to the insurance industry’s heavy burden of proving an exclusion bars coverage in these circumstances.
The only thing we can all be certain of is that COVID-19 insurance coverage litigation is just starting. It is far too early for insurance companies to feel overly confident when denying coverage for all claims. Policyholders are continuing to file new lawsuits and are prepared to fight for their businesses. With the initial round of lawsuits in the rear-view mirror, new trends will emerge as more cases are filed and litigated in courts throughout Florida and across the country.