ABC Industrial Laundry v. Allianz Global Corporate & Speciality
2:21-cv-01029
D. Nev.Mar 16, 2023Background
- ABC Industrial Laundry (d/b/a Universal Laundry Supply) provided laundry services to the Wynn/Encore and purchased a commercial property insurance policy effective during March 2020 covering business income, extra expense, civil authority, dependent property, and crisis events.
- The policy’s relevant coverage is conditioned on "direct physical loss of or damage to" property; that phrase is not defined in the policy.
- ABC alleges COVID-19 droplets on surfaces and resulting governmental closures caused its financial losses; defendants denied coverage and removed the suit to federal court.
- Allianz was misnamed and ABC voluntarily abandoned claims against that Allianz entity; claims against American Insurance Company remained at issue.
- The court applied Rule 12(b)(6) standards, reviewed the policy and stay-at-home orders, and followed District/Ninth Circuit precedent interpreting "direct physical loss" to require demonstrable physical alteration.
- The court granted defendants’ motion to dismiss: it dismissed ABC’s first three breach-of-contract claims with prejudice (futility); dismissed other claims (crisis-event, bad-faith, unfair-claims, declaratory relief, punitive damages) without prejudice, and gave leave to amend except as to the first three.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "direct physical loss of or damage to" includes COVID-19 presence/droplets | ABC: presence of viral droplets on surfaces altered property and suffices as direct physical loss | American: phrase requires demonstrable physical alteration or damage, not temporary contamination or economic loss | Court: phrase excludes claims lacking plausible allegations of physical alteration; ABC’s allegations fail; dismissed with prejudice (first three claims) |
| Whether remedial measures (UV lights, plexiglass, re-cleaning) show virus caused property damage | ABC: costs and physical changes taken to mitigate show property was affected by virus | American: those changes are ABC’s voluntary responses, not proof the virus physically altered the insured property | Court: remedial measures reflect ABC’s actions, not damage caused by virus; not covered |
| Whether crisis-event/premises-contamination coverage applies absent allegations of visible symptoms/injury on premises | ABC: premises contamination by COVID-19 justifies crisis coverage and closures | American: policy requires contamination that resulted in clear, identifiable symptoms of bodily injury, illness, or death on covered premises | Court: ABC did not plead symptoms or injuries tied to its premises; crisis-event claim dismissed without prejudice (amendment possible) |
| Whether bad-faith, Unfair Claims Practices Act, declaratory relief, punitive damages can proceed without coverage | ABC: insurer acted wrongly in denying coverage | American: insurer’s denial was legally reasonable because coverage was not triggered | Court: because coverage not plausibly shown, ancillary claims fail; dismissed without prejudice (punitive relief not pled with required particularity/clear-and-convincing standard) |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading standard for plausible claims)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility standard for complaints)
- Mudpie, Inc. v. Travelers Cas. Ins. Co., 15 F.4th 885 (9th Cir. 2021) ("direct physical loss" requires physical alteration)
- Century Sur. Co. v. Casino W., Inc., 329 P.3d 614 (Nev. 2014) (contract interpretation is a question for the court)
- Lucini-Parish Ins. v. Buck, Inc., 836 P.2d 627 (Nev. 1992) (insured bears burden to establish condition precedent to coverage)
- Levy Ad Grp., Inc. v. Chubb Corp., 519 F. Supp. 3d 832 (D. Nev. 2021) (economic losses from COVID closures not covered where policy requires physical loss)
- WP6 Rest. Mgmt. Grp. LLC v. Zurich Am. Ins. Co., 595 F. Supp. 3d 973 (D. Nev. 2022) (direct physical loss requires physical alteration)
- Crescent Plaza Hotel Owner L.P. v. Zurich Am. Ins. Co., 520 F. Supp. 3d 1066 (N.D. Ill. 2021) (remedial installations do not show virus-caused property alteration)