Covid Shut Down is not Direct Physical Loss or Damage

Covid Class Action Insurance Claim Fails in Florida

Sep 08, 2021

BACKGROUND

Plaintiff Sun Cuisine, LLC d/b/a Zest Restaurant and Market owns, operates, manages, and controls restaurants and related food and beverage operations at a location in Miami, Florida. On February 23, 2020, Defendants issued a standard form ISO all-risk commercial property insurance policy (the “Policy”) to Plaintiff under which Plaintiff agreed to make premium payments in exchange for Defendants’ promise to indemnify Plaintiff for losses. Those losses include, but are not limited to, business income losses at the insured properties. The Policy provides coverage for the period between February 23, 2020, and February 23, 2021.

The Policy

The Policy includes a standard policy form titled “Business Income (and Extra Expense) Coverage Form, ” which provides for business income losses. The insuring agreement provided:

We will pay for the actual loss of Business Income you sustain due to the necessary “suspension” of your “operations” during the “period of restoration.” The “suspension” must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit [o]f Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss. (emphasis added).

Acts of Governmental Authorities

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a worldwide pandemic. Following the guidance from the World Health Organization (WHO), the Presidential guidelines and the act of former Miami-Dade County Mayor Carlos Gimenez who issued Emergency Order 03-20 on March 17, 2020, closing all restaurants in Miami-Dade County other than for delivery to slow the spread of COVID-19 through person-to-person and surface-to-person contact. Governor Ron DeSantis issued Executive Order 20-69 restricting public access to businesses and facilities deemed non-essential, including restaurants in South Florida. As a result, Plaintiff was unable to welcome patrons into its restaurant and was required to drastically alter its property to reduce its operations to take-out and delivery.

The Lawsuit

Plaintiff sued seeking insurance coverage under the Policy for business interruption related to the COVID-19 pandemic. Defendants filed a Motion to Dismiss, arguing that Plaintiff failed to allege any physical loss or damage to the property. Plaintiff alleges that it suffered physical loss and damage to its property because COVID-19 altered the property to an unsatisfactory and highly dangerous state, unusable, inhabitable, and unfit for its intended purpose; this loss caused significant business income loss and extra expenses. Defendants moved to dismiss Plaintiff’s claims.

DISCUSSION

Defendants seek dismissal with prejudice of Plaintiff’s Amended Complaint for two main reasons. First, Defendants argued that Plaintiff’s allegations do not trigger coverage under the Policy. Specifically, Defendants argued that the Amended Complaint fails to allege either “direct physical loss of or damage to” the insured property or a nearby property as to trigger coverage under the Policy’s Business Income and Civil Authority provisions. Second, Defendants argue that coverage is barred by the Policy’s microorganism and pollution exclusions.

Insurance coverage cases under Florida law require courts to look at the insurance policy as a whole and give every provision its full meaning and operative effect. Insurance contracts are construed according to their plain meaning and courts begin their analysis by looking at the plain language of the policy, as bargained for by the parties.

To trigger coverage under the Business Income or Civil Authority provisions of the Policy, Plaintiff must prove that there was “direct physical loss of or damage to” the insured property or a nearby property while the Policy was in effect. There is no dispute that the alleged loss occurred while the Policy was in effect. Thus, a showing of direct physical loss of or damage to the property or a nearby property is the fundamental predicate to Plaintiff’s claims. Plaintiff’s Amended Complaint fails to meet this burden.

The Policy does not explicitly define “direct physical loss or damage.” A direct physical loss contemplates an actual change in insured property then in a satisfactory state, occasioned by accident or other fortuitous event directly upon the property causing it to become unsatisfactory for future use or requiring that repairs be made to make it so.

Plaintiff alleged, creatively, that the presence of COVID-19 on the insured property physically altered the property from a satisfactory state to an unsatisfactory state, and Plaintiff had to make substantial physical changes to the property “including the reconfiguration of seating, installation of plexiglass shields and sanitizer dispensers, and the enhancement of air filtration systems in response to the threat of transmission of the coronavirus from those coming in and out of the property.”

As a threshold matter, the mere presence of the virus on the physical structure of the premises does not amount to direct physical loss. [Mena Catering, Inc. v. Scottsdale Ins. Co., 512 F.Supp.3d 1309, 1318 (S.D. Fla. 2021); see also Carrot Love, LLC v. Aspen Specialty Ins. Co., 513 F.Supp.3d 1364, 1367 (S.D. Fla. 2021).] Plaintiffs’ argument that the presence of COVID-19 made the property unsuitable for its intended purposes because it closed for business due to the pandemic does not establish the physical loss or damage required by the Policy.

Secondly, the fact that Plaintiff had to reconfigure furniture and make physical alterations to the layout of the property to avoid contamination of COVID-19 does not qualify as physical loss or damage. While the Court is sympathetic to Plaintiff’s situation, it declined to depart from the prevailing consensus in this Circuit or rewrite the policy to provide a coverage neither party to the policy agreed to as a condition of indemnity.

The Court found, therefore, that Plaintiff’s allegations, even if taken as true, do not plausibly show direct physical loss or damage to the insured property or nearby property to trigger coverage under the Policy, and granted the defendants’ motion for summary judgment.

ZALMA OPINION

People whose businesses were shut down as a result of governmental orders to reduce the spread of the Pandemic continue to try to get their losses covered by insurance with creative pleading claiming the existence of the virus damaged their property. They continue, with regularity, to fail. If the government orders acted to take the property of the various restaurants, like the plaintiffs, they have a remedy under the Fifth Amendment to the U.S. Constitution to obtain compensation for property taken by the government.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at

http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4