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A difficult case does not require courts to stand beyond common sense



Shutting down a company because of the new Coronavirus, or COVID-19, is not directly physical damage in West Virginia

First-party property insurance, whether designated as "all risk" or " "direct risk of physical loss" does not exclude that there is a physical loss on the property, the risk of loss of which is insured. Due to orders from state governments requiring companies to shut down to avoid the spread of the disease, entrepreneurs are trying to recover their losses by make a claim under the Commercial Real Estate Policy Interruption Provisions.

I Uncork And Create LLC v. Cincinnati Insurance Company, et al. Civil Action No. 2: 20-cv-00401, United States District Court For the The Southern District of West Virginia Charleston Division (November 2, 2020) analyzed the problem as most courts presented the issue and ruled that the virus did not cause any physical harm to its own domen.

FACTUAL PROVISIONS

The plaintiff, Uncork and Create LLC, brought the present class action against the defendants, Cincinnati Insurance Company, Cincinnati Casualty Company and Cincinnati Indemnity Company (together Cincinnati). Complainant is a creative event company based in Barboursville and Charleston, West Virginia.

The appellant had a "full risk" insurance policy for commercial property protection from Cincinnati that was valid at all relevant times. The policy provides, with stated exceptions, coverage for a "loss", defined as "unintentional physical loss or unintentional physical injury." In the event of a loss covered, the insurance covers coverage for loss of business income during the closure of the business, including such a closure due to a civilian authority prohibiting access to the premises. 1

On March 16, 2020, the Governor of West Virginia declared a state of emergency related to the new coronavirus, or COVID-19, pandemic. On March 23, 2020, the governor issued an executive order demanding that all non-essential corporations cease all activities in addition to the minimum basic activities in order to maintain inventory, process salaries, etc. with effect from 8 pm on March 24, 2020. Uncork and Create were among the non-essential companies that were shut down as a result of the governor's order. The plaintiff incurred and continues to lose business income and other additional expenses.

The plaintiff notified Cincinnati in due time of its claim based on the interruption of its operations. Cincinnati denied the allegation, stating that the claim did not involve a direct physical loss at the plaintiff's premises. The plaintiff argued that the governor's order requiring the company to close constitutes a covered cause of loss under the policy, and / or that the virus itself causes direct physical loss or damage and is thus a covered cause of loss.

DISCUSSION [19659006] The defendants moved to dismissal, arguing that the actual allegations do not show that the plaintiff is entitled to exemption. They claim that physical loss or physical damage to the covered property is a prerequisite for coverage, and closing a company due to the threat of a virus does not constitute physical loss or damage. They point out that COVID-19 harms people, not property.

Under West Virginia law, the scope of an insurance contract, lacking actual disputes, is a matter of law. The language of an insurance policy should be given its usual, ordinary meaning. Clear and unambiguous provisions are not subject to legal construction or interpretation.

The new coronavirus has no effect on a company's physical premises. Non-essential companies were ordered to close to prevent people from exposing each other.

The majority of courts to address the issue have found that COVID-19 and state decisions shutting down companies to slow the spread of the virus do not cause physical harm or physical loss of insured property. In essence, the plaintiff seeks insurance cover for financial losses as a result of termination orders. Coronavirus does not change the physical appearance, shape, color, structure or other material dimension of the property. Consequently, the plaintiff has failed to invoke a direct physical loss – a condition for coverage.

Although factual allegations drive the analysis of a claim for dismissal, courts are not obliged to set aside common sense. There is a similar risk of exposure to the virus in all public settings, regardless of the cunning appeal of the likelihood of the virus occurring. Even when present, COVID-19 does not threaten the lifeless structures covered by property insurance, and its presence on surfaces can be eliminated with disinfectants. Thus, the actual presence of the virus would not be sufficient to trigger coverage for physical damage or physical loss of property. Since routine cleaning, perhaps performed with greater frequency and care, eliminates the virus on surfaces, there would be nothing for an insurance company to cover, and a covered "loss" is required to invoke additional coverage for loss of business income under the insurance.

COVID-19 poses a serious risk to people gathering near each other, and the government orders closing some companies were designed to improve that risk. If people could safely gather anywhere without the risk of infection, the plaintiff did not claim any facts that indicate any obstacle to Uncork & # 39 ;s activities. No repairs to the premises are necessary for its safe occupation if the virus is controlled and no longer poses a threat.

In short, the pandemic affects human health and human behavior, not physical structures. These behavioral changes, including changes required by government action, caused the plaintiff financial losses.

The Court is not unsympathetic to the situation facing the plaintiff and other companies. But the unambiguous terms of the policy do not only cover financial losses that are accompanied by physical damage to property. Therefore, the notice of termination must be granted.

Insurance is a contract, nothing more. A commercial real estate policy promises to compensate the insured against the risk of loss of the property covered by the insurance. There is no doubt that Uncork and Create have suffered losses as a result of the virus and the governor's orders. The problem is that there was no direct physical damage to the property, whose risk of loss was insured. Therefore, there is no repair or replacement and no physical damage to the property covered by the insurance. Insurers are not an elemosynary society. Insurers do not make decisions about whether it is beneficial to do so, but must make decisions based on the clear and unambiguous language of the policy.

© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to working as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance claims and insurance fraud almost equal for insurers . He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award.

For the past 52 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurers and their claims staff to become insurance claims staff.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Last read two issues of ZIFL here.

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