545 F.Supp.3d 1153
N.D. Okla.2021Background
- Plaintiff Till Metro Entertainment (The Vanguard), a Tulsa concert venue, sued insurer Covington for COVID-19–related business-interruption losses under a May 25, 2019–May 25, 2020 commercial property policy.
- Plaintiff sought Business Income, Extra Expense, Civil Authority, Sue & Labor coverage, and alleged bad faith after Covington denied the claim; policy was attached to the complaint.
- Key policy terms: Business Income/Extra Expense require "direct physical loss of or damage to property"; Civil Authority coverage applies when a Covered Cause of Loss causes damage to other property and civil authority prohibits access; Causes of Loss – Special form defines Covered Causes as "direct physical loss"; the policy contains a Pathogen Exclusion (excluding loss from pathogenic biological/chemical materials) and a Pollutant Exclusion in the Special form.
- Covington moved for judgment on the pleadings under Rule 12(c), arguing (1) no alleged direct physical loss/damage, (2) pathogenic exclusion bars COVID-19 losses, and (3) pollutant exclusion applies.
- The court applied Oklahoma contract/insurance law, construed the policy terms by their plain meaning, and granted Covington’s motion: coverage and bad-faith claims dismissed; pollutant exclusion argument was not adopted because the court concluded the Special form did not clearly apply to the Business Income form.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Business Income / Extra Expense coverage is triggered by COVID-19 closures ("direct physical loss of or damage to property") | "Direct physical loss" includes loss of use/possession—deprivation of rights to use property suffices | Requires tangible, material physical alteration or dispossession of property | Held for defendant: "direct physical loss" unambiguously requires material physical loss or damage; complaints allege no such tangible harm or traceable contamination that cannot be remedied by cleaning |
| Whether Civil Authority coverage applies for government closure orders | Government orders that prohibited use triggered Civil Authority coverage | Civil Authority requires damage to other property and proximate access prohibition tied to that damage | Held for defendant: plaintiff failed to allege damage to property other than the insured premises or the required proximate area/access facts |
| Whether the Pathogen Exclusion excludes COVID-19 losses | Plaintiff: a reasonable insured would not interpret "pathogenic materials" to include community-spread viruses or the exclusion is ambiguous | Defendant: COVID-19 is a pathogenic material and spreads by "dispersal/release," so the exclusion plainly applies | Held for defendant: "pathogenic" means causing disease; COVID-19 falls within the plain meaning and the exclusion bars coverage |
| Bad-faith (breach of covenant of good faith and fair dealing) | Insurer acted unreasonably in denying claims | No contractual liability exists, so no bad-faith basis | Held for defendant: coverage fails as a matter of law, so bad-faith claim—derivative of coverage—is dismissed |
Key Cases Cited
- Colony Ins. Co. v. Burke, 698 F.3d 1222 (10th Cir. 2012) (Rule 12(c) standard and accepting pleadings' factual allegations)
- Goodwill Indus. of Cent. Okla., Inc. v. Phil. Indem. Ins. Co., 499 F. Supp. 3d 1098 (W.D. Okla. 2020) (interpreting "direct physical loss" to require tangible physical alteration)
- Real Hosp., LLC v. Travelers Cas. Ins. Co. of Am., 499 F. Supp. 3d 288 (S.D. Miss. 2020) (reading "direct physical loss" to require material loss or damage)
- Studio 417, Inc. v. Cincinnati Ins. Co., 478 F. Supp. 3d 794 (W.D. Mo. 2020) (contrast—found plaintiffs plausibly alleged virus contaminated property)
- Promotional Headwear Int’l v. Cincinnati Ins. Co., 504 F. Supp. 3d 1191 (D. Kan. 2020) (rejecting speculative allegation of on-site contamination and holding mere presence allegation insufficient)
- Uncork & Create LLC v. Cincinnati Ins. Co., 498 F. Supp. 3d 878 (S.D. W. Va. 2020) (reasoned virus presence does not cause tangible structural damage and is removable by cleaning)
- Turek Enters., Inc. v. State Farm Mut. Auto. Ins. Co., 484 F. Supp. 3d 492 (E.D. Mich. 2020) (direct physical loss requires tangible damage)
- Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 487 F. Supp. 3d 834 (N.D. Cal. 2020) (policy contemplates physical damage)
- BP Am., Inc. v. State Auto Prop. & Cas. Ins. Co., 148 P.3d 832 (Okla. 2005) (ordinary rules for construing unambiguous contract language)
- Davis v. GHS Health Maint. Org., Inc., 22 P.3d 1204 (Okla. 2001) (insurer liability under contract is prerequisite to bad-faith claim)