In another victory for policy holders on business interruption claims arising from COVID-19, the federal district court denied the insurer’s motion to dismiss on one of two claims. Kingray Inc. v. Farmers Group Inc., et al., 2021 U.S. Dist. LEXIS 41300 (C. D. Cal. March 4, 2021).
Plaintiff Kingray Inc., who operated a sports bar and grill, and Plaintiff Nora’s Style Salon, Inc. filed suit against Farmers when business interruption coverage was denied under plaintiffs’ all risk policies. Government shut-down orders at the beginning of the COVID-19 pandemic caused plaintiffs to suffer loss of business income.
Plaintiff alleged that as a result of the COVID-19 civil authority orders, they suffered “direct physical loss of and damage to” their properties. The were unable to use their properties for their intended purpose and were forced to suspend and curtail business operations, rendering their properties less useful and profitable.
Kingray’s policy excluded “loss or damage cause by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” This exclusion defeated Kingray’s argument for coverage and its claims were dismissed.
Nora’s policy, however, did not include a virus exclusion. Nora’s argued that the “or” used in the phrase “direct physical loss of or damage to” demonstrated that “physical loss” was different from “physical damage.” The court agreed it was possible that either the coronavirus or the “stay at home” orders caused “direct physical loss” to Nora’s. Nora’s was forced to shutter, rendering its property unusable for its only purpose – the operation of a business. If Nora’s was not allowed to operate or invite others onto tis property, it was disposed in some way. Dispossession was a form of loss. It was plausible that “direct physical loss of” property included physical dispossession because of dangerous conditions (a virus in the air) or a civil authority order requiring Nora’s to close.
Therefore, Farmers’ motion to dismiss was granted in part, denied in part.