A federal judge in Seattle has dismissed lawsuits filed by hundreds of Washington state businesses seeking insurance coverage for revenues lost because of COVID-19 public health orders.
U.S. District Judge Barbara J. Rothstein on Friday granted insurers’ motions to dispose of lawsuits filed by dentists, restaurants, barbershops, law firms and the Seattle Symphony Orchestra. The case consolidated multiple lawsuits against 10 separate insurance groups that were filed or removed to federal court.
Rothstein said in her order that each of the lawsuits involved “all-risk” polices that provided coverage only if there was “direct physical loss of or damage to” property. The policies didn’t define the term. Insurance law doctrine, however, holds that all-risk policies are intended to cover damage to property, not economic loss, she said.
“This court joins the numerous courts across the country that have held that COVID-19 does not trigger direct physical loss or damage,” the order says.
Rothstein noted that some of the plaintiffs in the consolidated case had asked the Washington state Supreme Court for a declaratory ruling on whether COVID-19 can cause a direct physical loss or damage, but the high court refused. She said in the absence of direction from the Supreme Court, she is required to answer the question by reviewing Washington state law.
Rothstein’s decision represents one of the biggest losses so far for policyholders seeking coverage for pandemic-related losses. According to a COVID-19 litigation tracker maintained by the University of Pennsylvania, federal courts have dismissed with prejudice 252 COVID-19 lawsuits and denied only 23 dismissal motions. Another 30 cases were dismissed without prejudice and three were partially dismissed.
Policyholders who were able to keep their lawsuits in state court have done better. According to the litigation tracker, 27 state court lawsuits were dismissed with prejudice and in 27 cases motions to dismiss were denied.
In fact, two plaintiffs with lawsuits that have been heard by Washington state courts—one in King County and one in Spokane County—defeated insurer motions to dismiss. Rothstein discussed those rulings in her order.
The Spokane County Superior Court in a lawsuit filed by Perry Street Brewing Co. found that “loss” and “damage” must have distinct meanings and that loss can be understood to cover situations where property cannot be used for its intended purpose. Similarly, a lawsuits filed by Hill and Stout argued that their dental practice could not be used for its intended purpose because of the virus.
Rothstein said those rulings are “unpersuasive.”
“The reasoning that ‘loss’ could plausibly mean something akin to ‘deprivation of use’ discounts the preceding term ‘physical,'” the order states. “As stated above, this Court has already determined—in accord with the reasoning of the vast majority of those courts that have addressed the issue—that COVID-19 does not physically alter the insured property.”
The judge said the presence of a virus exclusion in a policy was irrelevant to her holding because there was no physical loss, regardless. However, she rejected arguments that the virus exclusion was barred by the doctrine of regulatory estoppel. Plaintiffs hard argued that insurers may not have been forthcoming with regulators when they filed the standard form that created the exclusion, so they may be prohibited from using it.
The policyholder losing streak in COVID-19 business-interruption claims appears to be gaining momentum. According to the University of Pennsylvania litigation tracker, during the month of May insurers were granted 49 motions to dismiss or for summary judgment, with only six cases decided in favor of policyholders.
About the photo: The owner of the Posquitos Mexican restaurant in Seattle was one of hundreds of plaintiffs whose lawsuits seeking coverage for business-interruption losses caused by COVID-19 were dismissed on Friday.
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