525 F.Supp.3d 1269
D. Nev.2021Background:
- On March 17, 2020 Nevada ordered cessation of gaming; Circus Circus closed its casino and claimed substantial business-income losses.
- Circus Circus submitted a claim under an AIG "all risks of direct physical loss or damage" policy that includes time‑element coverages (business interruption, contingent time‑element, ingress/egress, civil authority) but conditions coverage on "direct physical loss or damage."
- The policy contains a pollutants/contaminants exclusion that expressly defines "pollutants or contaminants" to include "virus."
- Circus Circus alleged COVID‑19 contaminated surfaces and sickened employees and sought coverage; AIG denied the claim and moved to dismiss for failure to state a claim and based on the pollutants exclusion.
- The court held Circus Circus failed to plausibly allege the kind of distinct, demonstrable physical alteration or permanent dispossession required to trigger "direct physical loss or damage," and that the virus falls within the policy's contaminants exclusion.
- The court dismissed the breach‑of‑contract and declaratory claims with prejudice, denied AIG's supplemental‑authority filing as unnecessary, but granted leave to amend solely to add an NRS 686A.310(1)(c) claim for allegedly unreasonable claim‑handling practices.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the policy covers losses from the government‑ordered COVID closure under the policy's requirement of "direct physical loss or damage" | Circus Circus: closure and alleged surface contamination constitute "direct physical loss or damage," or at least temporary loss of use | AIG: losses are purely economic and regulatory (closure), no distinct physical alteration or permanent dispossession | Held: Plaintiff fails to allege the required physical alteration or permanent dispossession; coverage not triggered |
| Whether the pollutants/contaminants exclusion bars coverage for COVID‑19 losses | Circus Circus: exclusion ambiguous or inapplicable; complaint lacks specific allegations of dispersal/release | AIG: exclusion plainly covers viruses and the pandemic involves dispersal/release of SARS‑CoV‑2 | Held: Exclusion applies; SARS‑CoV‑2 is a "virus" and falls within the pollutants/contaminants exclusion |
| AIG's motion for leave to file supplemental authority | AIG: supplemental authorities support dismissal | Circus Circus: unnecessary; court familiar with national precedent | Held: Denied — supplemental filing did not add controlling precedent and was unnecessary |
| Whether Circus Circus may amend to add bad‑faith and statutory unfair‑claims claims (NRS 686A.310) | Circus Circus: discovery revealed claim‑handling facts supporting new claims | AIG: amendment is futile, prejudicial, and untimely | Held: Amendment futile for breach, declaratory, implied‑covenant and NRS 686A.310(1)(e) claims; but leave granted to amend to add NRS 686A.310(1)(c) claim (unreasonable standards for prompt investigation) only |
Key Cases Cited
- United Nat’l Ins. Co. v. Frontier Ins. Co., 99 P.3d 1153 (Nev. 2004) (insurer's duty to defend evaluated by comparing complaint to policy terms)
- Century Sur. Co. v. Casino W., Inc., 329 P.3d 614 (Nev. 2014) (interpretation of pollutant exclusion and ambiguity principles)
- MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co., 187 Cal. App. 4th 766 (Cal. Ct. App. 2010) ("direct physical loss" requires distinct, demonstrable physical alteration)
- Commonwealth Enter. v. Liberty Mut. Ins. Co., 101 F.3d 705 (9th Cir. 1996) (coverage requires physical damage; intangible losses insufficient)
- Am. Excess Ins. Co. v. MGM Grand Hotels, Inc., 729 P.2d 1352 (Nev. 1986) (bad‑faith claim requires absence of reasonable basis for denial)
- Big‑D Const. Corp. v. Take It for Granite Too, 917 F. Supp. 2d 1096 (D. Nev. 2013) (standards for showing that an exclusion clearly applies)