Insurance Law Alert

January 2023

In This Issue
Ohio Supreme Court Rules That Ransomware Losses Are Not Covered By
Business Owners’ Policy
The Ohio Supreme Court ruled that an insurance policy that requires “direct physical loss ofor damage to” property does not cover losses stemming from a ransomware attack. EMOI
Services, L.L.C. v. Owners Ins. Co., 2022 WL 17905839 (Dec. 27, 2022). (Click here forfull article)“[SimpsonThacher’s] expertise
ranges from direct insurance
coverage of virtually all kinds,
through to reinsurance matters andcases relating to insurance companies’
business practices.”– Chambers New York
2022

Citing Lack Of Damages “Because Of Bodily Injury,” Sixth Circuit Rules
That Insurers Have No Duty To Defend Or Indemnify Opioid Claims
The Sixth Circuit affirmed a Kentucky district court holding that insurers have no duty to
defend or indemnify a pharmaceutical company in underlying opioid litigation because theclaims failed to allege damages “because of” bodily injury. Westfield National Ins. Co. v Quest
Pharmaceuticals, Inc., 2023 WL 179766 (6th Cir. Jan. 13, 2023). (Click here for full article)

Sixth Circuit Rules That Ohio’s All Sums Allocation Permits Insurers To
Seek Equitable Contribution From Insured
The Sixth Circuit ruled that insurers that have been targeted by a policyholder forindemnification under all sums allocation may later seek contribution from policies that would
result in payments by the policyholder. Chemical Solvents, Inc. v. Greenwich Ins. Co., 2023
WL 179772 (6th Cir. Jan. 13, 2022). (Click here for full article)

North Carolina Supreme Court Rules On Trigger, Allocation And
Exhaustion In Long-Tail Benzene Bodily Injury Suits
The North Carolina Supreme Court ruled that insurers’ coverage obligations were triggered
when an underlying claimant was exposed to benzene, that defense and indemnity costs mustbe allocated among multiple insurers on a pro rata basis, and that vertical exhaustion applied
for determining when umbrella or excess policies were implicated. Radiator Specialty Co. v.
Arrowood Indem. Co., 2022 WL 17726535 (N.C. Dec. 16, 2022). (Click here for full article)

Insurer Has No Contractual Or Common Law Duty To Indemnify Costs
Incurred By Policyholder To Prevent Imminent Covered Loss, Says
Supreme Judicial Court Of Massachusetts
The Supreme Judicial Court of Massachusetts ruled that a policyholder is not entitled toindemnification for costs it incurred in order to prevent imminent covered loss, finding nocontractual or common law basis for such an obligation. Ken’s Foods, Inc. v. Steadfast Ins. Co.,
491 Mass. 200 (Jan. 6, 2023). (Click here for full article)

Simpson Thacher & Bartlett LLP

1

Illinois Court Addresses Scope Of Coverage For BIPA Claims Under Excess
And Umbrella Policies
An Illinois district court ruled that exclusions in excess and umbrella policies did not negate
the insurer’s duty to defend a suit alleging violations of the Biometric Information Privacy Act,but that the duty to defend did not arise until the policyholder exhausted primary policy limits.
Thermoflex Waukegan, LLC v. Mitsui Sumitomo Ins. USA, Inc., 2023 WL 319235 (N.D. Ill.
Jan. 19, 2023). (Click here for full article)

Maryland Supreme Court Rules That Allegations Of Actual Presence Of
Virus On Insured Property Do Not Constitute Direct Physical Loss Or
Damage To Property
The Maryland Supreme Court ruled that an all-risk property policy did not provide coveragefor business losses stemming from the presence of the COVID-19 virus on insured property andthe resulting loss of functional use of that property. Tapestry, Inc. v. Factory Mutual Ins. Co.,
2022 WL 17685594 (Md. Dec. 15, 2022). (Click here for full article)

Applying Colorado Law, Tenth Circuit Affirms That COVID-19 Did Not
Impose Physical Loss Or Damage To Restaurant
The Tenth Circuit ruled that a restaurant’s pandemic-related business losses were not theresult of direct physical loss or damage, as required by the relevant policy. Sagome, Inc. v.
Cincinnati Ins. Co., 2023 WL 18796 (10th Cir. Jan. 3, 2023). (Click here for full article)

Ruling On Consolidated Appeals, Third Circuit Affirms Dismissals Of
Business Interruption Claims Based On Lack Of Physical Loss Or Damage
The Third Circuit rejected fourteen consolidated appeals of district court dismissals of lawsuits
seeking coverage for business interruption losses incurred in the wake of the virus and its
related government closure orders. Wilson v. USI Ins. Svs LLC, 2023 WL 116809 (3d Cir. Jan.
6, 2023). (Click here for full article)

New York Appellate Court Affirms That Communicable Disease Exclusion
Does Not Bar Coverage For Pandemic-Related Business Losses
A New York appellate court affirmed a New York trial court decision denying an insurer’s
motion to dismiss a COVID-19-related coverage suit based on a communicable disease
exclusion. Tina Turner Musical LLC v. Chubb Ins. Co. of Europe SE, 2022 WL 17419269 (N.Y.
App. Div. 1st Dep’t Dec. 6, 2022). (Click here for full article)

2

Cyber Alert:
Ohio Supreme Court Rules That
Ransomware Losses Are Not
Covered By Business Owners’ Policy
The Ohio Supreme Court ruled that aninsurance policy that requires “direct physicalloss of or damage to” property does not coverlosses stemming from a ransomware attack.
EMOI Services, L.L.C. v. Owners Ins. Co.,
2022 WL 17905839 (Dec. 27, 2022).
EMOI was the victim of a ransomware attack.
The company ultimately paid the hacker andsought coverage from Owners, which denied
coverage based on an Electronic Equipment
endorsement that required “direct physicalloss or damage.” A trial court dismissed thesuit, reasoning that there was no physical loss,
and additionally, even assuming that EMOI’s
software was damaged while it was encryptedby the hackers, most system files became fully
functional once the ransom payment was
made.
An intermediate appellate court reversed,
ruling that issues of fact existed as to whether
the attack resulted in direct physical loss.
(See November 2021 Alert). The appellate
court noted that the Electronic Equipment
endorsement covered “direct physical loss ofor damage to ‘media’” and that “media” wasdefined as “materials on which informationis recorded such as film, magnetic tape,paper tape, disks, drums, and cards.” The
policy further stated that “media” included“computer software and reproduction of datacontained on covered media.” Viewing theevidence in a light most favorable to EMOI,
the appellate court ruled that the company’s
computer servers may be considered “media”
because they “constituted materials on
which EMOI’s information was recorded.”
Additionally, the court ruled that EMOI
had raised an issue of fact as to whether its
software incurred “direct physical damage”
because the record established that portionsof the software remained unusable even after
decryption.
The Ohio Supreme Court reversed andreinstated the trial court’s grant of summary
judgment in the insurer’s favor. The court
held that under the “clear and unambiguous”
language of the Electronic Equipment
endorsement, there must be direct physicalloss of or damage to property, which does notinclude damage to software. Although theterm “computer software” was included within
the definition of “media,” the court explainedthat “it is included only insofar as the softwareis ‘contained on covered media’ . . . [which]means media that has a physical existence.”
As the court emphasized, all examples of
media in the definition of that term were of aphysical nature (“film, magnetic tape paper
tape, disks, drums, and cards”). The court
stated: “[T]he policy requires that there must
be direct physical loss or physical damage ofthe covered media containing the computer
software for the software to be covered under
the policy.” Because EMOI did not incurdamage to its physical media, any loss ordamage to software was not covered. Rejecting
the notion that software itself could sustain
direct physical loss or damage, the court
explained that software is “essentially nothing
more than a set of instructions” and lacks a“physical existence.”

Opioid Alert:
Citing Lack Of Damages “Because
Of Bodily Injury,” Sixth Circuit
Rules That Insurers Have No Duty
To Defend Or Indemnify Opioid
ClaimsThe Sixth Circuit affirmed a Kentucky district
court holding that insurers have no duty
to defend or indemnify a pharmaceuticalcompany in underlying opioid litigation
because the claims failed to allege damages“because of” bodily injury. Westfield National
Ins. Co. v Quest Pharmaceuticals, Inc., 2023
WL 179766 (6th Cir. Jan. 13, 2023).
Quest, a wholesale distributor ofpharmaceutical products, was sued innumerous lawsuits brought by cities and othergovernment agencies, alleging misconduct
3

that contributed to a nationwide epidemicof opioid abuse. The underlying suits soughtdamages for economic costs incurred by the
local and state governments in response to theepidemic. Quest’s insurers denied coverage,
arguing that the suits did not seek damages“because of” bodily injury, as required by thepolicies. In ensuing litigation, a Kentucky
district court granted the insurers’ summary
judgment motion. (See May 2021 Alert). This
month, the Sixth Circuit affirmed.
Addressing this matter of first impression
under Kentucky law, the Sixth Circuit
concluded that claims seeking compensation
for losses incurred by government agencies
in addressing the opioid crisis were notdamages “because of” bodily injury. The
court reasoned that “because of” requires aconnection between the damages sought inthe underlying suits and particular individual
bodily injury, which was not present here.
As the court noted, the Supreme Courts of
Ohio and Delaware have employed similarreasoning in finding that insurers were notobligated to defend underlying opioid suits.

Finally, the Sixth Circuit held that evenassuming that the policy language could
be considered ambiguous and therefore
construed in accordance with the insured’s
reasonable expectations, an insured could notreasonably expect coverage for the underlying
suits. The court explained that the policies
used the terms “because of bodily injury”
and “for bodily injury” interchangeably invarious provisions and that both phrases
suggest that coverage would extend only to“claims requiring proof of an actual bodily
injury, not all claims tangentially related tobodily injuries.”

Allocation Alerts:
Sixth Circuit Rules That Ohio’s All
Sums Allocation Permits Insurers
To Seek Equitable Contribution
From Insured
Affirming an Ohio district court decision,
the Sixth Circuit ruled that insurers thathave been targeted by a policyholder forindemnification under all sums allocation
may later seek contribution from policies thatwould result in payments by the policyholder.
Chemical Solvents, Inc. v. Greenwich Ins. Co.,
2023 WL 179772 (6th Cir. Jan. 13, 2022).
After Chemical Solvents settled anunderlying bodily injury lawsuit, it sought
indemnification from two of the numerous
insurers that issued policies during therelevant time frame. More specifically,
Chemical Solvents turned to Greenwich forreimbursement under two policies and Illinois
National for coverage under one policy. The
insurers then worked out for themselves anallocation of liability for which each policy
was responsible. Under that arrangement,
Illinois National contributed funding fromother policies it had issued to Chemical
Solvents (but which had not been targetedby Chemical Solvents for indemnification).
One of those other policies was reinsured
by Alembic, a group captive insurer thatwas partially owned by Chemical Solvents.
As a result, Chemical Solvents ended up
responsible for a large portion of what
Alembic owed to National Illinois.
Chemical Solvents sued the insurers, arguingthat it was impermissible under Ohio’s all
sums allocation to reallocate costs in a waythat would trigger Alembic’s policies (andconsequently, require payments by Chemical
Solvents). The district court ruled in theinsurers’ favor and the Sixth Circuit affirmed.
The Sixth Circuit rejected Chemical Solvents’contention that all sums allocation prohibitsa policyholder from bearing financial
responsibility. Rather, the doctrine promotes
economy for the insured by shifting theburden of calculating relative liability to theinsurers, “but doesn’t absolve the insured of
all financial burden.”
The court distinguished decisions from otherjurisdictions in which courts refused to allow
contribution from the insured for uninsured
or self-insured periods, explaining:4

[T]he insurers didn’t seek contribution
from Chemical Solvents. They sought itfrom Illinois National. No jurisdiction
has prohibited contribution whenever aninsured will face financial consequences
down the line. And given that Ohio
hasn’t established this exception at all,
we have no basis for creating such a
sweeping exception out of whole cloth.

North Carolina Supreme Court
Rules On Trigger, Allocation And
Exhaustion In Long-Tail Benzene
Bodily Injury Suits
The North Carolina Supreme Court ruled that
insurers’ coverage obligations were triggered
when an underlying claimant was exposed tobenzene, that defense and indemnity costs
must be allocated among multiple insurers on
a pro rata basis, and that vertical exhaustion
applied for determining when umbrella orexcess policies were implicated. Radiator
Specialty Co. v. Arrowood Indem. Co., 2022
WL 17726535 (N.C. Dec. 16, 2022).
Radiator was named in hundreds of suits
seeking damages for bodily injuries allegedly
caused by exposure to benzene. The
underlying claimants alleged that as a resultof exposure to Radiator’s benzene-containing
products over many years, they developed
progressive diseases. Addressing the scopeof liability coverage for these claims, theNorth Carolina Supreme Court issued thefollowing rulings related to trigger, allocationand exhaustion.
Trigger: The court held that “a claimant’s
period of exposure to benzene is theappropriate reference point in determining
which policies provide coverage for a givenbenzene-related injury.” Ruling that exposure
to benzene constitutes the injury-in-fact, thecourt explained that an “attempt to redefine‘injury-in-fact’ as death, disease, or someother physical manifestation of the harm
confuses the injury with its consequences. . . .
[C]ancer is a manifestation of the injury that
occurs upon benzene exposure that createsa compensable claim. It is not the injury
itself.” Emphasizing the fact-intensive natureof its holding, the court noted that in othercontexts (such as asbestos or environmental
contamination), a multiple-trigger theory
might be appropriate if, for example, new,
distinct injury or damage occurs over multiple
policy periods.

Allocation: The court ruled that insurers’
costs must be allocated on a pro rata timeon-the-risk basis. Rejecting Radiator’s “allsums” argument, the court explained thatany references to “all sums” in the policies
were limited by language referring to injuries
that occurred “during the policy period.” Thecourt noted that in other contexts, courts
have endorsed an all sums approach when
faced with similar “during the policy period”
language, but distinguished those cases basedon either a different factual record or the
inclusion of other relevant policy provisions.
Exhaustion: The court ruled that policy
language in a particular umbrella policy
required vertical exhaustion (under which a
policyholder may obtain coverage from an
excess policy once the limits of the primarypolicies directly beneath it within the same
policy period are exhausted) for purposes of
the umbrella insurer’s duty to defend. The
trial court had adopted a hybrid approach,applying horizontal exhaustion to the duty
to defend and vertical exhaustion to the duty
to indemnify, and the intermediate appellate
court affirmed. Reversing, the North Carolina
Supreme Court ruled that policy language
justified vertical exhaustion for the duty
to defend. In particular, the policy statedthat the insurer had the right and duty to
defend when: “a. The applicable limits of
insurance of the ‘underlying insurance’ andother insurance have been used up in thepayment of judgments or settlements; or b.
No other valid and collectible insurance isavailable to the insured for damages coveredby this policy.” The court concluded that
under section b, the umbrella insurer’s duty
to defend is triggered so long as no othervalid insurance was available for damages
covered by the policy, which was the casehere because the policies covering the same
periods as the umbrella policy did not cover
the benzene actions.

5

Coverage Alert:
Insurer Has No Contractual Or
Common Law Duty To Indemnify
Costs Incurred By Policyholder To
Prevent Imminent Covered Loss,
Says Supreme Judicial Court Of
Massachusetts
The Supreme Judicial Court of Massachusetts
ruled that a policyholder is not entitled toindemnification for costs it incurred in orderto prevent imminent covered loss, finding nocontractual or common law basis for such an
obligation. Ken’s Foods, Inc. v. Steadfast Ins.
Co., 491 Mass. 200 (Jan. 6, 2023).
The dispute arose after the policyholder’swastewater treatment system malfunctioned,
resulting in contamination of a nearby water
source. The policyholder took necessary
remediation and also implemented a
temporary system in order to allow it
to continue operating its business. The
insurer reimbursed the policyholder for thecosts of removing the wastewater that had
escaped and of preventing more waste fromoverflowing pursuant to a policy provision
for “reasonable and necessary” cleanup costs
for a pollution event. However, the insurer
argued it was not obligated to cover the
mitigation costs incurred in order to avoid
suspending its operations.

of ‘operations’ . . . as a direct result of a‘cleanup’ required by a ‘governmental
authority.’” The court emphasized that there
was no suspension of operations here; tothe contrary, the policyholder avoided asuspension by implementing the temporary
wastewater system for which it sought
reimbursement.
Additionally, the court declined to impose
a common law obligation to reimburse thepolicyholder’s mitigation expenses. The court
noted that other jurisdictions are divided
on this issue, but concluded that it need not
answer whether such a duty exists “abstractly”
under Massachusetts law because here, thespecific policy language was unambiguous.
The court stated: “A common law doctrine
cannot displace the clear provisions of the[p]olicy, . . . particularly when the [p]olicy
directly addresses and circumscribes theapplicability of the doctrine.” (Citation
omitted). In refusing to impose a common
law duty, the court noted that the contracting
parties were sophisticated commercial entities
that were “capable of, and responsible for,their own contractual risk allocation.”
Finally, the court noted that a maintenanceexclusion further indicated that the parties
did not intend to insure the mitigation costs
at issue. The exclusion applied to upgradeor improvement costs, even if required bygovernment authority or incurred as a resultof covered cleanup costs. The court reasoned
that the temporary treatment process utilized
by the policyholder in order to continue its
business operations appeared to fall within
the scope of this exclusion.

BIPA Alert:
Illinois Court Addresses Scope Of
Coverage For BIPA Claims Under
Excess And Umbrella Policies
Addressing this matter of first impression
under Massachusetts law, the Supreme
Judicial Court ruled that neither the operative
insurance policy nor common law required
the insurer to cover such costs. A mitigation
provision covered losses resulting from apollution event that caused a “suspensionof operations,” which was defined as a“necessary partial or complete suspension

An Illinois district court ruled that exclusions
in excess and umbrella policies did not negate
the insurer’s duty to defend a suit alleging
violations of the Biometric Information
Privacy Act (“BIPA”), but that the duty to
defend did not arise until the policyholder
exhausted primary policy limits. Thermoflex
Waukegan, LLC v. Mitsui Sumitomo Ins.
USA, Inc., 2023 WL 319235 (N.D. Ill. Jan.
19, 2023).
6

The underlying suit against Thermoflex
alleged BIPA violations based on thecompany’s policy of requiring workers to scan
handprint data, which was then transmitted
to a third party. In a previous ruling in thiscase, an Illinois district court ruled that
there was no coverage under general liability
policies issued by Mitsui based on an “Accessor Disclosure Exclusion.” In the present
ruling, the court addressed whether coverage
was available under two provisions in excess
and umbrella policies issued by Mitsui,
and whether certain exclusions in thosepolicies applied.
As a preliminary matter, the court ruled thatcoverage was unavailable under a provisionthat is triggered only when underlying
insurance provides coverage in the firstplace. The court refused to reconsider theprior ruling that the Access or Disclosure
Exclusion in the general liability policy
applied, and therefore concluded that excess
and umbrella coverage under a provision thatwas predicated on underlying general liability
coverage was unavailable.
However, the court concluded that the
BIPA claims triggered coverage under aseparate provision that applied to “personal
and advertising injury coverage (defined toinclude injury arising out of the publicationof material that violates a person’s right toprivacy) and which did not require coverage
under an underlying liability policy. Mitsui
argued that three exclusions barred coverage
under that provision, but the court disagreed.
First, the court declined to apply a Statutory
Violations Exclusion, which applied to alleged

violations of the TCPA, the CAN-SPAM
Act of 2003, the Fair Credit Reporting Act,
the Fair and Accurate Credit Transaction
Act, and “any other federal, state, or local
law, regulation, statute, or ordinance that
restricts, prohibits, or otherwise pertains tothe collecting, communicating, recording,printing, transmitting, sending, disposal,
or distribution of material or information.”
Applying the reasoning set forth in W. Bend
Mutual Ins. Co. v. Krishna Schaumburg Tan,
Inc., 2021 IL 125978 (Ill. 2021) (discussed in
our May 2021 Alert) and Citizens Ins. Co. of
Am. v. Wynndalco Enters., LLC, 2022 WL
952534 (N.D. Ill. Mar. 30, 2022) (discussed
in our April 2022 Alert), the court ruled thatthe catchall provision in the exclusion did
not encompass alleged BIPA violations. The
court acknowledged that the exclusion in
Krishna was narrower in scope than the one
at issue here, but nonetheless agreed with
the Wynndalco decision that interpretingthe catchall provision to include BIPA claims
would “swallow up large swaths” of coverage.
Ultimately deeming the exclusion ambiguous,
the court construed it in favor of coverage.
Additionally, the court declined to apply
a Data Breach Exclusion that applied todamages arising out of the “disclosure of oraccess to private or confidential information.”
The court acknowledged that the language ofthe exclusion “tracks closely with the Accessor Disclosure Exclusion” that was held tobar general liability coverage in the court’s
previous ruling, but concluded that “reading
the exclusion in its entirety suggests that itwas not intended to bar coverage beyond
data breach liability.” More specifically, thecourt reasoned that language in the exclusion7

referring to computer applications andsoftware suggested that it was focused ondamages resulting from a data breach, or at aminimum, ambiguous in its scope.
A third exclusion precluded coverage fordamages arising out of “other employmentrelated practices, policies, acts, or omissions
directed towards that person.” The court
rejected Mitsui’s contention that the BIPA
claims, which arose out of a policy requiring
employees to use a biometric time tracking
system, fell within the scope of the exclusion.
Citing Citizens, the court concluded thatthe phrase “directed towards that person,”
together with an enumerated list of examples
that pertained to actions taken against
a specific individual (e.g., harassment,
demotion, discipline), indicated that theexclusion was not intended to apply to acompany-wide policy that affected all workers
in the same way.
Finally, the court ruled that even though noneof the exclusions precluded coverage of theunderlying claims, that Mitsui had no present
duty to defend because Thermoflex had not
exhausted primary coverage. In so ruling,
the court took judicial notice of a ruling inanother case holding that a different primary
insurer owed Thermoflex a duty to defend
the underlying suit. Applying the principleof horizontal exhaustion (under which all
primary policies must be exhausted before
excess coverage is implicated), the court heldthat Mitsui had no present duty to defend.

COVID-19 Alerts:
Maryland Supreme Court Rules
That Allegations Of Actual Presence
Of Virus On Insured Property Do
Not Constitute Direct Physical Loss
Or Damage To Property
The Maryland Supreme Court ruled thatan all-risk property policy did not provide
coverage for business losses stemming fromthe presence of the COVID-19 virus on
insured property and the resulting loss offunctional use of that property. Tapestry,
Inc. v. Factory Mutual Ins. Co., 2022 WL
17685594 (Md. Dec. 15, 2022).
The court answered the following certified
question in the negative:

When a first-party, all-risk property
insurance policy covers “all risks ofphysical loss or damage” to insured
property from any cause unless
excluded, is coverage triggered when atoxic, noxious, or hazardous substance—such as Coronavirus or COVID-19—isphysically present in the indoor air ofthat property; is also present on, adheres
to, and can later be dislodged fromphysical items on the property; andcauses a loss, either in whole or in part,of the functional use of the property?
The court explained that absent tangible,
concrete and material harm to property, ora deprivation of the possession of property,
the physical loss or damage requirement is
not met by the presence of viral particles.
In so ruling, the court declined to consider
the absence of a viral exclusion in therelevant policies, stating: “We do not think
the availability on the insurance market
of a broader virus exclusion undermines
the unambiguous language employed in
the Policies.”

Applying Colorado Law, Tenth
Circuit Affirms That COVID-19
Did Not Impose Physical Loss Or
Damage To Restaurant
The Tenth Circuit ruled that a restaurant’s
pandemic-related business losses were not
the result of direct physical loss or damage, as
required by the relevant policy. Sagome, Inc.
v. Cincinnati Ins. Co., 2023 WL 18796 (10thCir. Jan. 3, 2023).
The court noted that the question of whether
COVID-19 causes direct physical loss ordamage under a property policy is an open
question under Colorado law, but joined
the consensus among other federal circuit
courts in ruling that it does not. In particular,
the Tenth Circuit rejected the restaurant’s
assertion that there is physical loss or damage
because the virus itself is physical. The
court explained: “For coverage, the loss ordamage itself must be physical, not simply
stem from something physical.” In addition,
employing similar reasoning to many othercourts in this context, the court noted that thepolicy’s “period of restoration” clause, whichreferences restoration and repair, reinforces
the conclusion that there was no physicalloss or damage because the operative eventthat allowed the business to reopen was the8change in government orders rather than any
specific repair or restoration.
Importantly, the court distinguished adecision in which the Colorado Supreme
Court ruled that a church sustained direct
physical loss or damage when it was required
to close as a result of gasoline vapors. There,
the court reasoned that the accumulation ofgasoline around and under the church wasso severe as to render it uninhabitable. The
court explained that a complete dispossessionof property due to gas accumulation isqualitatively different from the presenceof COVID-19, which did not render therestaurant uninhabitable. As the court noted,
the restaurant continued to use its property
even after the initial shutdown orders
were issued.

Ruling On Consolidated Appeals,
Third Circuit Affirms Dismissals
Of Business Interruption Claims
Based On Lack Of Physical Loss Or
DamageThe Third Circuit rejected fourteen
consolidated appeals of district court
dismissals of lawsuits seeking coverage forbusiness interruption losses incurred in thewake of the virus and its related government
closure orders. Wilson v. USI Ins. Svs LLC,
2023 WL 116809 (3d Cir. Jan. 6, 2023).
Business owners in Pennsylvania, New Jersey,
New York, Maryland and Delaware argued
that the loss of use of their properties during
the pandemic constituted the requisite direct
physical loss of or damage to property under
their insurance policies. Rejecting theseassertions, the court stated: “the businesses
lost the ability to use their properties fortheir intended business purposes because thegovernors of the states in which they operateissued orders closing or limiting the activities
of nonessential businesses, not because there

was anything wrong with their properties.”
Because the court found no coverage under
the operative policy provisions, it did not
address whether virus or “ordinance or law”
exclusions barred coverage.

New York Appellate Court Affirms
That Communicable Disease
Exclusion Does Not Bar Coverage
For Pandemic-Related Business
LossesOur December 2021 Alert reported on a
New York trial court decision denying an
insurer’s motion to dismiss a COVID-19related coverage suit based on its finding thata communicable disease exclusion did not bar
coverage. Tina Turner Musical LLC v. Chubb
Ins. Co. of Europe SE, 2021 WL 5818352(N.Y. Sup. Ct. Dec. 6, 2021). Last month, anappellate court affirmed the decision. Tina
Turner Musical LLC v. Chubb Ins. Co. ofEurope SE, 2022 WL 17419269 (N.Y. App.
Div. 1st Dep’t Dec. 6, 2022).
The sole issue before the appellate court waswhether coverage was barred by an exclusionthat applied to “any loss directly or indirectly
arising out of, contributed to by, or resulting
from . . . any communicable disease or threator fear of communicable disease” whichleads to: . . . “the imposition of quarantine
or restriction in movement of people oranimals by any national or international
body or agency” [or] . . . “any travel advisory
or warning being issued by a national orinternational body or agency.” The trial court
ruled that this provision did not apply because
the policyholder’s losses stemmed from anorder issued by the New York Governor rather
than a national or international authority.
Affirming the decision, the appellate court
rejected the insurer’s contention that theexclusion encompassed losses caused bycommunicable diseases “that were of sucha systemic nature as to lead to quarantine
or travel advisory orders by a national orinternational body or agency” in general, even
where, as here, the specific losses at issue
arose from an order issued by a governor.
Rather, giving the exclusion “a strict andnarrow construction” and resolving any
ambiguities against the insurer, the appellate
court explained that the exclusion was limited
to losses resulting from orders issued by anational or international body or agency.

9

Simpson Thacher has been an international leader in the practice of insurance and reinsurance law for
more than a quarter of a century. Our insurance litigation team practices worldwide.

Andrew T. Frankel+1-212-455-3073
afrankel@stblaw.com

Lynn K. Neuner+1-212-455-2696
lneuner@stblaw.com

Summer Craig+1-212-455-3881
scraig@stblaw.com

Bryce L. Friedman+1-212-455-2235
bfriedman@stblaw.com

Joshua Polster+1-212-455-2266
joshua.polster@stblaw.com

Sarah E. Phillips+1-212-455-2891
sarah.phillips@stblaw.com

Michael J. Garvey+1-212-455-7358
mgarvey@stblaw.com

Tyler B. Robinson+44-(0)20-7275-6118
trobinson@stblaw.com

Isaac M. Rethy+1-212-455-3869
irethy@stblaw.com

Chet A. Kronenberg+1-310-407-7557
ckronenberg@stblaw.com

George S. Wang
+1-212-455-2228
gwang@stblaw.com

Abigail W. Williams+1-202-636-5569
abigail.williams@stblaw.com

This edition of the
Insurance Law Alert was prepared byBryce L. Friedman / +1-212-455-2235
bfriedman@stblaw.com and
Lynn K. Neuner / +1-212-455-2696
lneuner@stblaw.com
with contributions by Karen Cestarikcestari@stblaw.com.

The contents of this publication are for informational purposes only. Neither this publication nor the
lawyers who authored it are rendering legal or other professional advice or opinions on specific facts
or matters, nor does the distribution of this publication to any person constitute the establishment of an
attorney-client relationship. Simpson Thacher & Bartlett LLP assumes no liability in connection withthe use of this publication. Please contact your relationship partner if we can be of assistance regardingthese important developments. The names and office locations of all of our partners, as well as ourrecent memoranda, can be obtained from our website, www.simpsonthacher.com.
Please click here to subscribe to the Insurance Law Alert.
10SimpsonThacherWorldwide

UNITED STATESEUROPEASIANew York
425 Lexington Avenue
New York, NY 10017+1-212-455-2000

Brussels
Square de Meeus 1, Floor 7
B-1000 Brussels
Belgium+32-472-99-42-26

Beijing
3901 China World Tower A
1 Jian Guo Men Wai Avenue
Beijing 100004
China+86-10-5965-2999

Houston
600 Travis Street, Suite 5400
Houston, TX 77002+1-713-821-5650
Los Angeles
1999 Avenue of the Stars
Los Angeles, CA 90067+1-310-407-7500
Palo Alto
2475 Hanover Street
Palo Alto, CA 94304+1-650-251-5000
Washington, D.C.
900 G Street, NW
Washington, D.C. 20001+1-202-636-5500

LondonCityPoint
One Ropemaker Street
London EC2Y 9HUEngland+44-(0)20-7275-6500

Hong Kong
ICBC Tower
3 Garden Road, Central
Hong Kong+852-2514-7600
Tokyo
Ark Hills Sengokuyama Mori Tower
9-10, Roppongi 1-Chome
Minato-Ku, Tokyo 106-0032
Japan+81-3-5562-6200

SOUTH AMERICA

São Paulo
Av. Presidente Juscelino
Kubitschek, 1455
São Paulo, SP 04543-011
Brazil+55-11-3546-1000

11