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Travelers Among Insurers Prevailing in Covid Coverage Cases (1)

Oct. 1, 2021, 5:11 PMUpdated: Oct. 1, 2021, 9:49 PM

The Ninth Circuit on Friday dashed the hopes of three companies that had filed insurance claims for damages they said were caused by business interruptions associated with the Covid-19 pandemic.

Clothing store Mudpie Inc. and plaintiffs in the other suits—a group of Minor League Baseball teams and a dental appliance company—sued Travelers Casualty Insurance Co. of America, National Casualty Co., and Continental Casualty Co., respectively. But they failed to convince a three-judge panel that insurers were liable when operations were affected by the public health emergency.

The U.S. Court of Appeals for the Ninth Circuit issued an opinion in the Mudpie case then cited it in memoranda dispensing with the separate cases brought by Selane Products Inc. and the Chattanooga Lookouts and other minor league baseball teams.

The losses incurred by Mudpie don’t meet the policies’ standards for physical damage, the court said in an opinion by Judge Morgan Christen.

California courts would construe the phrase “physical loss or damage to” as requiring physical alteration to the property, Christen wrote. Mudpie’s losses therefore do not fit within the policy’s definition of “physical damage” connected to business interruptions.

The court rejected Mudpie’s argument that “direct physical loss” could be satisfied by a “loss of use” standard.

Mudpie had also wanted the California Supreme Court to weigh in on whether business interruptions could constitute a “physical loss” under the terms of the contracts. The Ninth Circuit also rejected that request.

The policy at issue in the baseball teams’ suit contained a virus exclusion clause, the court noted in a disposition memo issued by the same panel. The court examined various state-law interpretations of “efficient proximate cause,” which it described as a cause “that sets the other causes in motion.”

“For the states implicated in this appeal that determine causation according to the efficient proximate cause analysis, the district court correctly concluded the virus exclusion bars coverage,” it ruled.

Selane Products, based north of Los Angeles, had to cease operations when the state ordered businesses to close. In the memo affirming dismissal of that case, the panel said the coronavirus itself did not cause loss or damage to the business.

“Selane alleged that the stay-at-home orders caused it to suspend its operations, but it did not plausibly allege that the stay-at-home orders caused its property to sustain any physical alterations,” the appeals court said.

Judge Michael M. Anello, sitting by designation from the Southern District of California, heard the appeals and joined the decisions, as did Judge Danielle J. Forrest.

Gibbs Law Group LLP represented Mudpie. Gibson, Dunn & Crutcher LLP represented Travelers.

Cohen Ziffer Frenchman & McKenna LLP represented the lead plaintiff in the baseball teams’ lawsuit. Squire, Sanders and Dempsey LLP represented National Casualty.

Parker Waichman LLP represented Selane Products, and Squire Sanders as well as Paul, Weiss, Rifkind, Wharton & Garrison LLP represented Continental Casualty.

The cases are: Mudpie Inc. v. Travelers Cas. Ins., 9th Cir., No. 20-16858, 10/1/21; Selane Products Inc. v. Cont’l Cas. Co., 9th Cir., No. 21-55123, 10/1/21; and Chattanooga Pro. Baseball v. Nat’l Cas. Co., 9th Cir., No. 20-17422, 10/1/21.

(Updated throughout to include details of the decisions that were released after the Mudpie opinion was issued.)

To contact the reporter on this story: David McAfee in Los Angeles at dmcAfee@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Peggy Aulino at maulino@bloomberglaw.com

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