658 F.Supp.3d 883
D. Nev.2023Background
- Arminas Wagner Enterprises, a Nevada corporation, purchased an all-risk commercial policy that contained a virus-or-bacteria exclusion.
- Governor Sisolak’s COVID-19 emergency orders caused Arminas Wagner to close its business on March 20, 2020; the insured submitted a claim on April 16, 2020, which Ohio Security denied on April 18, 2020 (no direct physical damage; virus exclusion).
- Arminas Wagner sued asserting seven claims: declaratory relief, breach of contract, inapplicability of exclusion, breach of implied covenant of good faith and fair dealing (contractual and tort), violation of NRS 686A.310, and bad faith.
- Ohio Security removed the case, moved to dismiss for failure to state a claim, and the court stayed the matter pending Ninth Circuit guidance in Circus Circus; after that decision the insurer renewed its motion.
- The district court found (under Nevada law and Circus Circus) that the policy’s "direct physical loss" requirement was not met and the virus exclusion would apply; it concluded Ohio Security had a reasonable basis to deny coverage.
- The court dismissed all claims with prejudice and declined to grant leave to amend as futile; judgment was entered and the case closed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether business-income, extended-income, and extra-expense coverage is triggered by COVID-19 shutdowns | Wagner: losses from state-ordered shutdown are covered; the presence/effect of the virus caused loss of use | Ohio Security: policy requires "direct physical loss" or damage; COVID-19 shutdowns do not allege physical alteration | Held: No coverage — "direct physical loss" not plausibly alleged; Circus Circus controls |
| Whether civil-authority coverage applies | Wagner: governor’s order restricting access triggers civil-authority coverage | Ohio Security: civil-authority coverage requires physical conditions/damage and a "Covered Cause of Loss" (direct physical loss) | Held: No coverage — order alone insufficient without alleged physical alteration |
| Applicability of the virus exclusion | Wagner: claims are economic/business losses caused by the order, not by virus-caused physical injury | Ohio Security: exclusion bars loss ‘‘caused directly or indirectly’’ by any virus, including where virus contributed to loss | Held: Even if coverage otherwise existed, the virus exclusion would preclude recovery; plaintiff alleges no loss independent of COVID-19 |
| Bad faith, implied covenant, and NRS 686A.310 claims | Wagner: insurer misrepresented, failed to investigate/promptly process, and unreasonably denied claim | Ohio Security: denial was reasonable based on policy text; no obligation to pay existed | Held: Claims dismissed — insurer had reasonable basis to deny; no bad-faith or statutory violation shown |
Key Cases Cited
- Circus Circus LV, LP v. AIG Specialty Ins. Co., 525 F. Supp. 3d 1269 (D. Nev. 2021) (construing “direct physical loss” under Nevada law in COVID-19 business-interruption context)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state plausible claim beyond speculative allegations)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (two-step plausibility/pleading framework)
- Starr v. Baca, 652 F.3d 1202 (9th Cir. 2011) (post-Iqbal guidance on factual specificity and plausibility)
- Fourth St. Place v. Travelers Indem. Co., 270 P.3d 1235 (Nev. 2011) (policy terms construed in context; ambiguity resolved to give harmonious meaning)
- Levy Ad Grp., Inc. v. Chubb Corp., 519 F. Supp. 3d 832 (D. Nev. 2021) (business-income provisions not triggered by COVID-19 economic losses absent physical loss)
- Guar. Nat. Ins. Co. v. Potter, 912 P.2d 267 (Nev. 1996) (bad-faith requires unreasonable denial of a valid claim)
- Powers v. United Servs. Auto. Ass’n, 962 P.2d 596 (Nev. 1998) (standard for bad-faith refusal to pay)
- Ins. Co. of the W. v. Gibson Tile Co., Inc., 134 P.3d 698 (Nev. 2006) (tortual recovery for breach of implied covenant may arise in insurer-insured special relationship)
- Hilton Hotels Corp. v. Butch Lewis Prods., 808 P.2d 919 (Nev. 1991) (contractual implied covenant prevents conduct that frustrates contract’s spirit)