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Policyholders Face Uphill Battle in Covid Interruption Appeals

Aug. 11, 2021, 9:46 PM

Policyholders who say their insurers owe money to cover financial losses caused by the Covid-19 pandemic faced skepticism from the Ninth Circuit on Wednesday, as they sought at oral argument to revive their claims connected to closing their businesses to stop the spread.

A group of Minor League Baseball teams, a dental appliance company, and a San Francisco retailer separately argued before the Ninth Circuit that claims stemming from their insurance policies were wrongly dismissed before sufficient discovery took place and should be revived. In the alternative, they asked that the U.S. Court of Appeals for the Ninth Circuit seek the advice of the California Supreme Court on what constitutes a “physical loss” and whether business interruption losses could potentially fit under that category of coverage.

Similar claims have been filed against insurers nationwide, and district courts have mostly sided with insurers.

The baseball teams, led by the Chattanooga Lookouts—a AA minor-league affiliate of the Cincinnati Reds—argued that they alleged multiple concurrent causes of losses, including government inaction allowing spread of the virus, meaning a virus exclusion in its policy shouldn’t apply to its claims.

Judges Morgan Christen and Danielle J. Forrest questioned whether that meant the district court wrongly dismissed the case without further discovery.

In a separate-but-related case, dental appliance manufacturer Selane Products Inc. argued that its position was better than the others because there was no virus exclusion in its insurance policy with Continental Casualty Co.

But exclusion or not, the losses must fit within the policy’s definition of a covered loss, which requires an alteration to the covered property or premises that’s physical, Forrest pointed out.

Selane argued that it should be covered for closing its doors in order to prevent the spread of the virus, emphasizing that there “is a physical alteration” of the property caused by the virus, even if it’s not detectable to the naked eye.

Children’s clothing company Mudpie Inc. led the charge seeking certification of the question of whether or not it had suffered physical damage to or loss of its property to the state’s high court. It also argued that under California law, the policyholder’s reasonable interpretation of the policy controls.

The panel also included Judge Michael Monroe Anello, sitting by designation from the U.S. District Court for the Southern District of California.

Mudpie is represented by Gibbs Law Group LLP. Selane is represented by Pasich LLP. Chattanooga is represented by Cohen Ziffer Frenchman & McKenna LLP. Travelers Casualty Ins. is represented by Gibson, Dunn & Crutcher LLP. National Casualty Co. is represented by Squire Patton Boggs. Continental Casualty is represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP.

The cases are Mudpie Inc. v. Travelers Casualty Ins., 9th Cir., No. 20-16858, 8/11/21, Selane Products Inc. v. Continental Casualty Co., 9th Cir., No. 21-55123, 8/11/21 and Chattanooga Pro Baseball v. National Casualty Company, 9th Cir., No. 20-17422, 8/11/21.

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; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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