Legal Sea Foods, LLC v. Strathmore Ins. Co.
36 F.4th 29
1st Cir.2022Background
- Legal Sea Foods (plaintiff) bought a commercial property policy from Strathmore (insurer) effective March 1, 2020–March 1, 2021 covering Building & Personal Property, Business Income, and Extra Expense, each triggered by "direct physical loss of or damage to" covered property. Civil Authority coverage existed but was not pursued on appeal.
- The Policy contains "Ordinance or Law" and "Acts or Decisions" exclusions; it does not contain a virus exclusion.
- During March 2020 COVID-19 orders, dining rooms were closed or severely restricted; Legal alleged SARS-CoV-2 had been present on premises and caused losses and submitted a claim, which Strathmore denied for lack of "direct physical loss" and citing exclusions.
- Legal sued in D. Mass.; the district court dismissed all claims under Fed. R. Civ. P. 12(b)(6), holding the complaint did not plausibly allege "direct physical loss" as requiring more than the virus’s transient presence, and dismissed the Chapter 93A claim for the same reason.
- The First Circuit, applying Massachusetts law and relying on the Massachusetts SJC’s decision in Verveine v. Strathmore, affirmed the district court dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether presence of SARS‑CoV‑2 at restaurants constitutes "direct physical loss of or damage to" property for Business Income / Extra Expense coverage | Virus contaminated air and surfaces, can persist for hours/days, requires increased cleaning and remediation; therefore it is a physical loss or damage triggering coverage | Policy requires a distinct, demonstrable physical alteration or remedial work; the virus’s evanescent or surface‑level presence that dissipates or is removed by simple cleaning is not covered | Court affirmed dismissal: under Verveine such transient/cleanable contamination is insufficient; coverage not plausibly alleged |
| Whether absence of an express Virus Exclusion creates ambiguity entitling insured to coverage | No virus exclusion implies coverage for pandemic losses; ambiguities favor the insured | Absence of exclusion does not create a negative implication that pandemic losses are covered; policy language is not ambiguous here | Held for insurer: Verveine rejects the negative‑implication argument and finds no ambiguity |
| Whether insurer’s denial supports a Chapter 93A claim | Denial of coverage was unfair/deceptive under Mass. Gen. Laws ch. 93A | An insurer does not violate Ch. 93A if it made a reasonable, good‑faith coverage determination based on policy terms | Held: 93A claim dismissed for same reasons as contract claim (no plausible coverage), affirmed |
Key Cases Cited
- Verveine Corp. v. Strathmore Ins. Co., 184 N.E.3d 1266 (Mass. 2022) (SJC holds "direct physical loss or damage" requires distinct, demonstrable physical alteration or remediation; transient/cleanable virus presence insufficient)
- Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 20 F.4th 327 (7th Cir. 2021) (interpreting "direct physical loss" to require more than diminished use; partial use may be insufficient)
- Kim‑Chee LLC v. Phila. Indem. Ins. Co., 535 F. Supp. 3d 152 (W.D.N.Y. 2021) (transient airborne/surface contamination by virus does not constitute physical loss or damage)
- Dorchester Mut. Ins. Co. v. Krusell, 150 N.E.3d 731 (Mass. 2020) (insurance contract ambiguities construed against insurer)
- City Fuel Corp. v. Nat'l Fire Ins. Co. of Hartford, 446 Mass. 638, 846 N.E.2d 775 (Mass. 2006) (policy terms given their plain and ordinary meaning; exclusions construed against insurer)