As COVID-19 insurance cases loom, 11th Circuit restricts definition of property damage

(Reuters) – Miami’s Berries oceanfront restaurant lost nearly $ 300,000 in 2014 when construction on the curb of its street created dust and dirt that drove customers away. Berries’s troubles that year had nothing to do with COVID-19, which hadn’t even hit the world when its parent company, Mama Jo’s, sued the insurer for refusing to pay the restaurant’s claim. However, a Tuesday 11th appeals court ruling in Mama Jo’s case is likely to translate into nationwide litigation by other restaurants and businesses suing their insurers for coverage for losses they suffered in COVID-19 shutdowns.

More than 1,000 COVID-19 insurance claims have been filed to date Hunton Andrew Kurth Coronavirus complaint tracker. They now compromise the largest category of cases, surpassing civil rights suits and habeas petitions from prisoners and detainees. And I bet the number of insurance claims will continue to rise after the multi-district judicial panel denied requests to create a single statewide process to see if the coronavirus pandemic triggered insurance coverage under property damage regulations and corporate authorities Has.

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The threshold question in these COVID-19 claims is, as I told you last week and as we saw in early decisions, whether policyholders can prove they have suffered direct physical loss or damage from the coronavirus. Plaintiffs rely on scattered precedents that policyholders may be eligible for coverage if contamination – such as from asbestos or lead – makes their property uninhabitable and unusable, even if the property has not undergone any noticeable physical alteration. US District Judge last week Stephen Bough of Kansas City found this theory plausible enough to allow a class of restaurants and hair salons to move on to discovery with their Cincinnati Insurance coverage claims. (I should note that the day after Judge Bough’s decision was US District Judge David Ezra of San Antonio dismissed COVID-19 insurance interruption insurance claims against State Farm from several barber shops, concluding that the case law demanding material damage is more persuasive

The 11th Circuit decision in Mama Jo’s case appears to significantly reinforce the precedent favored by insurers. The restaurant initially blamed dust and dirt from road construction for about $ 16,000 in cleaning and painting costs, as well as nearly $ 300,000 in lost business. It was later alleged that dust damaged the exterior awning and roof, as well as the air conditioning, lighting, and sound systems by an additional $ 320,000. The insurer, Sparta Insurance, denied the original claim on the grounds that the restaurant did not suffer direct physical losses, so the provision of business interruptions was not triggered.

In the ensuing legal battle before the US district judge Michael Moore Miami-based Sparta has successfully challenged the admissibility of reports by Mama Jo experts about alleged damage to lighting and other systems. Without these experts, the trial judge said, the restaurant could not prove that it suffered direct physical loss and Sparta was entitled to a summary judgment.

Much of the 11th Circle’s decision on Tuesday analyzed the expert issue, which it ended on in agreement with Judge Moore. The three-person jury – judges Kevin Newsom and Gerald Tjoflat and U.S. District Judges David Proctor from Birmingham Sitting by Designation – devoted only the last three pages to deciding whether dust that could be removed or painted over constitutes direct physical loss or damage. However, this brevity does not undermine the ultimate conclusion: “Under Florida law, an object or structure that requires merely cleaning has not suffered a” loss “that is both” direct “and” physical “,” wrote Judge Proctor .

And without proving a direct physical loss, said the appeals court, the restaurant could not claim insurance cover for business interruptions because the provision is based on property damage. Regardless of how badly the restaurant was disrupted by the road construction, the 11th Circuit owed no payment from its insurer.

Mama Jo’s advice Paul Feltman from Alvarez, Feltman, Da Silva and Costa was not available and his partner Leonardo Da Silva and Miguel Lara did not respond to an email request.

If you draw an analogy between the construction dust in the Mama Jo case and the coronavirus in the COVID-19 insurance dispute, you can see why the ruling could be an important weapon for insurers facing suits in Florida, and even the rest of them of the 11th circuit. In COVID-19 cases, insurers have already argued that even if companies can demonstrate that the coronavirus has contaminated their premises, they cannot face any direct physical loss or damage as it can be removed with disinfectant. Judge Bough dismissed that argument in the Kansas City case, but Mama Jo’s 11th Circuit decision gives it new strength.

Jorge Maza from Hinshaw & Culbertson, who argued for Sparta at the 11th Circuit, told me he expected the ruling to be widely quoted by insurers in COVID-19 litigation as it is a clear one in an area where precedents are relatively rare A statement about what constitutes direct physical loss if there is no tangible damage to a property. “There has to be a physical change,” Maza said, adding that when he argued this case in January, he had no idea that there would be consequences beyond Sparta’s argument with Mama Jo. “That will help nationwide.”

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