554 F.Supp.3d 389
D. Conn.2021Background
- Plaintiff Cosmetic Laser, Inc., an Ohio "Medi Spa" owner, purchased an all-risk commercial property policy from Twin City covering Feb 8, 2020–Feb 8, 2021.
- The policy contains a Virus Endorsement that excludes loss "caused directly or indirectly by... virus," but provides a limited exception and limited Time Element (Business Income/Extra Expense/Civil Authority) coverage in Section B.1 if the virus results from a "specified cause of loss" or equipment breakdown.
- Ohio COVID-19 closure orders in March 2020 forced Cosmetic Laser to suspend or curtail operations; Cosmetic Laser alleges SARS-CoV-2 contaminated surfaces and air, causing direct physical loss and necessitating remediation/cleaning and other costs.
- Cosmetic Laser submitted a claim for business-interruption and related losses; Twin City denied the claim and moved to dismiss; Cosmetic Laser amended its complaint and sought class treatment.
- The court evaluated (1) whether the Virus Exclusion covers COVID-19, (2) whether the limited Time Element clause (B.1.f) supplies coverage despite the exclusion, and (3) whether the policy’s Business Income/Extra Expense/Civil Authority coverages require a tangible physical alteration to property. The court granted Twin City’s motion to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Virus Exclusion bars COVID-19–related losses | "Virus" is ambiguous; ejusdem generis limits it to the same class as fungi/wet rot/dry rot (e.g., wood-related) and absence of 2006 ISO endorsement shows no intent to exclude communicable diseases | "Virus" is plain and unambiguous and includes COVID-19; the exclusion expressly bars loss caused by virus; majority of courts read it to exclude COVID losses | Exclusion applies: "virus" includes COVID-19 and the Virus Exclusion bars coverage |
| Whether Subsection B.1.f (Time Element) provides standalone coverage despite the Virus Exclusion | B.1.f is not constrained by B.1.a and therefore can provide up to 30 days Time Element Coverage when a virus causes suspension of operations | B.1.f is part of the limited coverage in Section B.1 and requires the antecedent in B.1.a (a specified cause of loss or equipment breakdown) to apply | B.1.f is limited by B.1.a; it does not create a standalone exception that would swallow the Virus Exclusion |
| Whether "direct physical loss" / "physical damage" includes mere loss of use or transient contamination (no structural alteration) | "Direct physical loss" can include loss of functionality or usefulness (loss of use); COVID-19 contamination or resulting remediation can be a physical alteration | Both terms require tangible, perceptible physical alteration; transient/cleanable virus contamination and government closure orders do not constitute physical alteration | Requires tangible, structural alteration; mere loss of use or removable contamination is insufficient for Business Income/Extra Expense coverage |
| Whether Civil Authority coverage is triggered by closure orders | Government orders closing nonessential businesses prohibited access and thus trigger Civil Authority coverage | Civil Authority coverage requires a Covered Cause of Loss to property in the immediate area (physical loss to nearby property); Cosmetic Laser alleged no such physical loss | Civil Authority coverage not available because plaintiff failed to allege physical loss to nearby property |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading plausibility standard)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must be plausible, not merely speculative)
- Facebook, Inc. v. Duguid, 141 S. Ct. 1163 (2021) (canons of construction are tools with limitations)
- Hammer v. Lumberman’s Mut. Cas. Co., 214 Conn. 573 (1990) (insurance-policy interpretation follows ordinary contract rules)
- Buell Indus., Inc. v. Greater New York Mut. Ins. Co., 259 Conn. 527 (2002) (insurer bears burden to prove exclusion; insured must prove exception)
- Capstone Bldg. Corp. v. American Motorists Ins. Co., 308 Conn. 760 (2013) (rules on ambiguity and policy construction)
- Chicago Title Ins. Co. v. Huntington Nat’l Bank, 87 Ohio St. 3d 270 (1999) (Ohio courts construe policy language by plain meaning to ascertain parties’ intent)
- Westfield Ins. Co. v. Galatis, 100 Ohio St. 3d 216 (2003) (plain and ordinary meaning controls unless context indicates otherwise)