520 F.Supp.3d 140
D. Mass.2021Background
- SAS International owns and leases commercial property in Fall River, MA; COVID-19 civil-authority orders in March 2020 disrupted its tenants and business income.
- SAS submitted claims in July and August 2020 under its General Star commercial property policy for pandemic-related losses.
- The Policy covers losses only for a "direct physical loss of or damage to" covered property and ties Business Income and Civil Authority coverage to a "Covered Cause of Loss."
- General Star denied coverage, concluding the pandemic losses were not a "direct physical loss" under the Policy.
- SAS sued for a declaratory judgment and breach of contract; General Star moved to dismiss for failure to state a claim.
- The court granted the motion, holding the Policy’s language requires tangible, enduring physical harm and does not cover losses from transient viral contamination or mere loss of use.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "direct physical loss of or damage to" covers COVID-19 contamination or mere loss of use | Phrase can include intangible conditions that render property unusable; COVID-19 on surfaces caused physical loss | Requires tangible, material alteration or enduring physical harm; transient virus presence not enough | Phrase unambiguously requires tangible, enduring physical loss or damage; virus presence does not qualify |
| Whether Civil Authority coverage applies absent direct physical loss at insured premises | Civil Authority coverage is independent of direct physical loss at the insured premises | Civil Authority coverage is tied to a "Covered Cause of Loss" and thus requires direct physical loss elsewhere | Civil Authority coverage limited to actions caused by a Covered Cause of Loss (i.e., direct physical loss) |
| Adequacy of factual allegations that COVID-19 contaminated the premises to plead coverage | Pleads statistical certainty and presence of infected individuals depositing virus at the location | Allegations are conclusory, speculative, and lack corroborating evidence | Allegations insufficient to plead a plausible claim of direct physical loss; dismissal appropriate |
| Contract interpretation / ambiguity (contra proferentem) | Policy language is ambiguous and should be construed for the insured | Language is plain; "physical" modifies both "loss of" and "damage to" and must be enforced | Court finds the policy unambiguous; interprets "physical" in its ordinary sense and enforces terms |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must state a plausible entitlement to relief)
- Ashcroft v. Iqbal, 556 U.S. 662 (plausibility standard for pleadings)
- Ruggerio Ambulance Serv. v. Nat'l Grange Mut. Ins. Co., 430 Mass. 794 (insurance policy interpretation is a question of law)
- Easthampton Congregational Church v. Church Mut. Ins. Co., 916 F.3d 86 (policy construed by ordinary meaning under Massachusetts law)
- Essex Ins. Co. v. BloomSouth Flooring Corp., 562 F.3d 399 (permeating odors can, in some contexts, be physical injury to property)
- HRG Dev. Corp. v. Graphic Arts Mut. Ins. Co., 26 Mass. App. Ct. 374 (limitations on "physical loss" interpretations)
- Given v. Commercial Ins. Co., 440 Mass. 207 (absence of express exclusion does not create coverage)
- Allamerica Fin. Corp. v. Certain Underwriters at Lloyd's, 449 Mass. 621 (every word in an insurance contract given meaning and effect)