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Allegations that COVID-19 was physically present and altered property are sufficient to sustain COVID-19 business interruption



On Wednesday, a Texas Factory Mutual's federal judge denied Rule 12 (c) of the submissions and found that the plaintiffs sufficiently claimed that the presence of COVID-19 on their property caused physical loss or damage covered in cases of Cinemark Holdings, Inc. vs. Factory Mutual Insurance Co. No. 4: 21-CV-00011 (ED Tex. 5 May 2021). This is the third COVID-19-related business interruption decision by Judge Amos Mazzant since March, but the first in favor of a policyholder. Altogether, the three decisions have two important takeaways and provide a roadmap for policyholders in all jurisdictions. property is adequate under federal standards and controlling state law. In his proposal, FM judge Mazzant's recent decision referred to Selery Fulfillment, Inc. v Colony Insurance Co. No. 4: 20-CV-853, 2021

WL 963742 (ED Tex. 15 March., 2021), which dismissed a lawsuit claiming that the policyholder's losses were caused by state orders closing its operations rather than from the actual existence of the virus on its property. The court held that state decisions alone do not constitute physical loss or damage and declined to determine whether the physical presence of the virus does. Judge Mazzant reached the same conclusion weeks later during Aggie Investments, L.L.C. v. Continental Casualty Co. No. 4: 21-CV-0013, 2021 WL 1550479 (ED Tex. April 20, 2021).

In Cinemark however, the court noted its earlier decision in Selery : “Here, Cinemark claims another damage and is governed by different contract terms. Unlike Selery, Cinemark claims that COVID-19 was actually present and actually damaged the property by changing the air content . ”(Emphasis added). Judge Mazzant's three decisions illustrate the facts policyholders need to develop in their approach to COVID-19 claims. Actual loss or damage caused by a physically present virus should be sufficient to meet the threshold requirement for the insured to maintain certain physical loss or damage to property. virus particles attach to and change their property, and even retain expert witnesses before filing a complaint. While other courts have dismissed trials in which the plaintiff only made a conclusive statement that COVID-19 was present on their property, Cinemark – represented by Hunton Andrews Kurth LLP – made detailed allegations in a 330-piece complaint declaring the damage to be COVID-19. caused its property. As the court noted, Cinemark fully claimed that COVID-19 "damaged the property by changing the air content." This, together with Cinemark's other fact – specific allegations, was sufficient to counteract the insurer's move from Rule 12.

Second, Decision Cinemark acknowledges that insurance with explicit "contagious illness" coverage should respond to COVID – 19 losses. FM's policy contains explicit coverage for an "infectious disease", which FM allows COVID-19 by definition to be included. To avoid the implications of the insurance's Time Element coverage, which is triggered by physical loss or damage "of the type insured" under the insurance, FM claimed that the infectious disease coverage does not require loss or damage. However, as the Court acknowledged, "

This marks the second recent decision in federal court to reject a request for a judgment on the pleadings filed by FM in a COVID-19 case. As previously reported, Thor Equities, LLC v. Factory Mutual Insurance Co. No. 20 Civ. 3380 (AT), 2021 WL 1226983 (S.D.N.Y. March 31, 2021), the Southern District of New York found that FM's exclusion of pollutants was ambiguous and thus did not apply to losses caused by COVID-19. Cinemark decision does not explicitly address the exclusion of pollution, but FM raised the same argument for exclusion of pollution in Cinemark as it raised in Thor Equities and the court clearly considered not that they were materially valid.


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