A Connecticut federal court determined that the Virus Exclusion eliminates coverage for COVID-19 business income claims. In a case of first impression, Judge Shea lent his voice to the growing chorus of cases finding that COVID-19 business interruption claims are not covered under standard term commercial property policies. See LJ New Haven LLC d/b/a Lenny and Joe’s Fish Tale v. Amguard Ins. Co., 3:20-cv-00751 (MPS), Dec. 21, 2020.
Founded as a clam stand in 1979, Lenny’s & Joe’s Fish Tale grew to become three seafood restaurants along the Connecticut shoreline, in New Haven, Madison and Westbrook. But, like so many hospitality businesses, Lenny’s was severely impacted by COVID-19-inspired stay-at home orders. In March 2020, Connecticut Governor Ned Lamont issued executive orders suspending indoor-dining and bar operations to slow the transmission of the virus. The order noted that the risk of exposure “is particularly acute in places the public gathers typically to socialize, eat, drink, shop, be entertained, and go for recreation.” As a result, Lenny’s suffered significant loss of income and even had to shutter its New Haven location.
Lenny’s sought business income coverage from its carrier, Amguard. Lenny’s claimed that the stay-at home orders prevented it from using its properties for its intended purpose. Lenny’s was careful to avoid any allegation that the restaurants suffered from actual contamination or infestation by the virus. Amguard issued standard ISO commercial property coverage, including loss of business income sustained “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….” The policy also included Civil Authority and Extra Expense coverage.
In addition, Amguard included the standard ISO virus exclusion, that includes anti-concurrent causation language. “We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area….j.(1) Any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”
Amguard moved to dismiss, arguing that the virus exclusion bars coverage for COVID-19 related loss. The court agreed and, therefore, did not consider whether Lenny’s claims even triggered coverage in the first place. The court found that the exclusion precluded coverage for loss caused “directly or indirectly” by a virus; and, that the anti-concurrent causation language means that a virus only must “act as a link somewhere in the causal chain producing the loss or damage at issue.” The court found that Amguard easily met its burden. As the court wrote, “it cannot seriously be disputed….that the virus is at least a 'but for' cause of [Lenny’s] loss…” The causal link between the virus and the executive order, the court found was intertwined and inseparable. Because Connecticut courts have accepted and applied anti-concurrent causation language, there was no need to determine whether the virus was the efficient proximate cause of the loss. It suffices that the virus is a significant or substantial cause of the loss.
The court further rejected Lenny’s other arguments as to why the virus exclusion was inapplicable. First, the court found that the plain language of the exclusion does not require that the virus enter and contaminate the insured premises. “There is no mention of contamination or any other restriction bases on the virus’s location.” (citing N&S Restaurant LLC v. Cumberland Mut. Fire Ins. Co., 20-CV-05289, 2020 WL 6501755 (D.N.J. Nov. 5, 2020)).
The court also rejected Lenny’s argument that, within the context of the policy as a whole, that the virus exclusion is only applicable to onsite contamination. Lenny’s claimed that the exception within the exclusion restoring coverage for loss resulting from fungi, rot, and pollution indicates that the exclusion only applies in instances of contamination. The court held that there is nothing intrinsically “onsite” about these causes of loss, noting that such conditions in an adjacent property could cause loss. And, the noscitur a socii canon of construction did not mean that the word virus must be accorded the same meaning as the elements within the exception to the exclusion. “The policy clearly distinguished between fungi and viruses, and I decline to import into the virus exclusion an 'onsite' or 'contamination' restriction that appears nowhere in the terms of the policy,” the court concluded.
The court also rejected Lenny’s assertion that a loss caused by a precautionary measure to avoid a peril cannot be caused by that peril. As Lenny put it, the virus could not cause the loss because the Order was issued to prevent the virus from causing loss. The court declined to follow Lenny’s suggestion that the order was issued as a result of fear of the virus and not because of the virus. The court, rejecting Lenny’s cases. noted that as of the date of decision, there were 35 decisions addressing the virus exclusion in the COVID-19 context and that 32 found the exclusion applicable. Of the three contrary outcomes, the court wrote that, “I do not find these cases persuasive in light of the wight of authority favoring application of the virus exclusion when courts were presented with similar policy language and analyzed the issue.”
This decision, as the court pointed out, follows the great weight of authority finding that business income claims arising from COVID-19 stay-at home orders are not covered by standard commercial property insurance policies. Each day there are more such decisions issued, as the some 1,500 BI lawsuits work their way through the trial courts. While there are some outlier decisions (mostly emanating from the state courts), they are just that, outliers; generally, thinly reasoned or addressing unique state law or policy language.