535 F.Supp.3d 574
E.D. La.2021Background:
- Q Clothier (multiple LLCs operating custom men’s clothing stores) purchased a Twin City Business Owner’s Policy covering June 19, 2019–June 19, 2020 and paid an added premium for limited fungi/bacteria/virus coverage.
- In March 2020 state and local COVID-19 orders closed nonessential businesses; Q Clothier submitted a claim for business-interruption, extra expense, civil-authority, and limited-virus losses.
- Twin City denied the claim, citing a Virus Exclusion in the policy that excludes loss "caused directly or indirectly" by a virus, and moved for judgment on the pleadings under Rule 12(c).
- Court applied Louisiana law (no meaningful conflict with Texas law) and governed contract interpretation by Louisiana rules.
- Court held plaintiffs failed to plead direct physical loss or physical damage to property necessary to trigger business-income/extra-expense/time-element/civil-authority coverages, and the Virus Exclusion in any event bars coverage.
- Because there is no underlying covered loss, related breach-of-contract and bad-faith (La. R.S. 22:1892/1973) claims and requests for fees were dismissed.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Q Clothier alleged a "direct physical loss or physical damage" sufficient to trigger coverage | Pandemic and government closure rendered premises unusable for intended purpose, satisfying "physical loss" | Losses are purely economic from governmental orders; no demonstrable physical alteration to property | Held: No. Pleadings show economic loss only; Louisiana and Fifth Circuit authority require physical, demonstrable property damage |
| Whether the Policy's Virus Exclusion bars recovery for COVID-related losses | Paid premium for Limited Virus Coverage and Time Element clause restores coverage in some circumstances | Virus Exclusion unambiguously excludes loss caused directly or indirectly by a virus; COVID-19 is in the causal chain | Held: Virus Exclusion applies; plaintiffs concede COVID caused their losses, so exclusion bars claims |
| Whether the Time Element provision (B.1.f) provides independent coverage despite the Virus Exclusion | Time Element is a separate clause that can provide coverage even if B.1.b Limited Virus Coverage is not triggered | Time Element must be read in context; it applies only if Time Element coverage is otherwise in force and still requires prerequisites (loss resulting in a virus and physical loss) | Held: No independent recovery. B.1.f is read with the Limited Virus Coverage and does not rescue plaintiffs absent the required physical loss or the Limited Coverage prerequisites |
| Whether Civil Authority coverage applies to losses from governmental orders | Civil-authority coverage applies because access was effectively prohibited by orders responding to COVID-19 | Civil-authority requires an order issued as a direct result of physical damage to property in the immediate area; here orders responded to pandemic risk, not proximate property damage | Held: No. Plaintiffs failed to allege the necessary nexus between physical damage to nearby property and the government orders; access was not restricted for maintenance/admin tasks |
Key Cases Cited
- Hartford Ins. Co. of Midwest v. Mississippi Valley Gas Co., [citation="181 F. App'x 465"] (5th Cir.) (2006) (requires some physical manifestation of loss or damage for coverage)
- In re Chinese Manufactured Drywall Products Liab. Litig., 759 F. Supp. 2d 822 (E.D. La. 2010) (toxic/odorous contamination rendered property unusable and qualified as physical loss)
- Dickie Brennan & Co. v. Lexington Ins. Co., 636 F.3d 683 (5th Cir. 2011) (no business-interruption coverage without physical damage despite evacuation orders)
- In re Katrina Canal Breaches Litig., 495 F.3d 191 (5th Cir. 2007) (contract interpretation principles for insurance policies)
- Aggreko, L.L.C. v. Chartis Specialty Ins. Co., 942 F.3d 682 (5th Cir. 2019) (Texas and Louisiana do not meaningfully conflict on insurance interpretation)
- Doerr v. Mobil Oil Corp., 774 So.2d 119 (La. 2000) (insured bears burden to show coverage; insurer bears burden to prove exclusions)
- Bossier Plaza Assocs. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 813 So.2d 1114 (La. App. 2 Cir. 2002) (courts enforce unambiguous exclusionary clauses)
- Widder v. La. Citizens Prop. Ins. Corp., 82 So.3d 294 (La. App. 4 Cir. 2011) (contamination that rendered home unusable held to be direct physical loss)