December 9, 2020, in Light Stream Spa vs. State Farm Mutual Automobile Ins. Co. No. 2: 20-cv-00265-RAJ-LRL (EDVA December 9, 2020), a federal court in Virginia refused to dismiss a majority of the policyholder's breach of the contract claim and its claim for damages in bad faith, explanatory assessment and class certification. , all stemming from insurers' denial of coverage for COVID-19-related business revenue losses. The policyholder, a spa, bought an all-risk insurance with coverage for, among other things, loss of business income and extra costs. Spaet, a non-essential corporation, was closed on March 16, 2020 due to government orders requiring all non-essential corporations to close due to the COVID-1
The insurers moved to dismiss the spa's breach of contract contract, claiming that the insurance only provided coverage for loss caused by a covered cause of loss, which the policy defined as “unintentional direct physical loss to covered property. . . According to insurers, the phrase "direct physical loss" requires some "structural damage" to property, and that COVID-19 does not meet this threshold because it does not cause structural damage to property. The insurers therefore claimed that the coverage according to the policy had not primarily been triggered. However, insurers argued that even if COVID-19 could cause property damage, any losses would be excluded by three different exceptions: a so-called "virus" exclusion, a "law and regulation" exclusion and an exclusion alleged to prevent coverage for loss as a result of the insured's act or decision. In a lengthy and well-reasoned decision, the court rejected each of the insurers' arguments and dismissed only those parts of the spa's claim based on the policy's civil policy coverage, as the court found that the order was "issued because" COVID-19 poses an ongoing threat to [Virginia] societies & # 39 ;, and not because of past actual & # 39; physical damage & # 39; to their own property or surrounding property. "
In order to reach its decision, the Court applied the general principles of insurance. Interpretation, by applying the simple meaning of policy while narrowly interpreting the interpretation of insurance exemptions against the insurer. In addition, the court applied the well-established principle of ambiguity where a provision is susceptible to more than a reasonable interpretation.
The Court found that the phrase "direct physical loss" was the subject of "a range of legal definitions", which the Court ultimately decided to call for ambiguity. the phrase has been interpreted by courts in Virginia and across the country as either (1) "structural damage;" (2) "distinct and demonstrable physical alteration," or (3) loss of habitability, access and / or hazardous use. the court found that other judges had reasonably ruled that the phrase used in the policy had different meanings, the courts n to the conclusion that the phrase was ambiguous and interpreted the phrase in favor of coverage.
The Court also addressed each of the alleged exceptions and rejected each of them. First, the court found that the exclusion of fungi, viruses or bacteria did not apply. The policyholder claimed that government closure orders and not COVID-19 were the cause of the spa's loss. The insurer counteracted that the broad simultaneous causal language led to the exclusion being valid as long as COVID-19 was part of the causal chain that led to the loss. The court agreed with the spa and found that the effect of antisidual causal language has not been decided in Virginia. Furthermore, the court found that the language would only apply where a virus had spread throughout the property, in accordance with rulings of other federal courts. The court finally concluded that the exclusion required the virus to be the immediate cause of the loss chain, which was not the case.
The court similarly found that the regulation and exemptions from the law were not applicable because the state ordered to restrict companies due to the pandemic does not fall within the parameters of the exclusion. According to the simple language of the policy, the exception only applies to laws and regulations that regulate the construction, use, repair, removal of debris or physical aspects of the property. However, the Court concluded that State decisions are not regulations or laws and therefore could not support the application of this derogation.
Finally, the court denied the insurer's proposal to exclude documents or decisions, which excludes coverage for any loss caused by 'conduct, documents or decisions of any person, group, organization or government agency. . . "Legally, the court rightly stated that 'the exclusion is so ambiguous and broad that it is taken literally in its simple reading, that the policy would be useless, as any act of any character by any person, group or entity would prohibit coverage.'  Although Light Stream Spa represents another favorable decision for policyholders who have been so strongly affected by the COVID-19 pandemic, the decision shows why a proper analysis of the relevant policy provisions necessarily requires COVID to be covered. -19 loss of business income, especially in cases that do not include a “virus” exclusion or that include such an exception without a broadly coordinated causal link. As Judge Jackson demonstrates through the Court's careful analysis of the competing meanings of "direct physical loss", where applicable policy interpretation rules require the insurer to show that its interpretation of the policy is the only reasonable interpretation, insurers may not be able to meet that view. given the "spectrum of legal definitions" that courts have reasonably attached to the phrase. Correctly setting the prism through which the policy is analyzed is crucial to achieving the right results. Judge Jackson put it properly in the Light Stream Spa and reached a proper conclusion.