Insurance Law Alert

November 2020

In This Issue
Delaware Supreme Court Rules That Appraisal Action Is Not A Covered“Securities Claim”
The Supreme Court of Delaware ruled that an appraisal action is not a covered “Securities
Claim” and that D&O insurers have no duty to pay for pre-judgment interest and defense
expenses incurred in that action. In re Solera Ins. Coverage Appeals, 2020 WL 6280593 (Del.
Oct. 23, 2020). (Click here for full article)“Renownedin the market as
accomplished trial
lawyers and coverageexperts who offer quality
representation to clients in
the insurance industry.”– Chambers USA
2020

Texas Court Dismisses Suit Based On Hurricane-Related Port Closures,
Citing Lack Of Physical Damage
A Texas federal district court ruled that an insurer had no duty to cover business interruption
losses resulting from Texas port closures prior to Hurricane Harvey, finding that the closures
were not caused by “direct physical loss of or damage to” covered property. Evanston Ins.
Co. v. AmSpec Holding Corp., 2020 WL 6152190 (S.D. Tex. Oct. 20, 2020). (Click here forfull article)

Texas Court Rules That Multiple Cases Of Food Poisoning Over Four-Day
Period Are Subject To A Single Occurrence Limit
A Texas federal district court ruled that 124 separate cases of food poisoning stemming from asingle restaurant are subject to a single occurrence limit under a liability policy. Travelers Cas.
Ins. Co. of Am. v. Mediterranean Grill & Kabob Inc., 2020 WL 6536163 (W.D. Tex. Nov. 4,2020). (Click here for full article)

Courts Across The Country Continue To Rule On Covid-Related Coverage
Claims, With Substantial Majority Finding No Coverage
Click here for a jurisdictional chart that summarizes recently-issued decisions in this context.

Missouri Court Dismisses Complaint Alleging Overcharge Of Premiums
During Covid
A Missouri federal district court dismissed a policyholder’s suit alleging that the insurer
overcharged premiums due to changes in business activity during the Covid pandemic. Alissa’s
Flowers, Inc. v. State Farm Fire & Cas. Co., 2020 WL 6555048 (W.D. Mo. Oct. 22, 2020).
(Click here for full article)


Simpson Thacher & Bartlett LLP

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Nebraska Supreme Court Rules That Pollution Exclusion In Property
Policy Bars Coverage For Methamphetamine Vapor In Rental House
The Supreme Court of Nebraska ruled that a pollution and contamination exclusion applied toclaims alleging property damage stemming from methamphetamine production or use withina rental property. Kaiser v. Allstate Indem. Co., 307 Neb. 562 (Oct. 23, 2020). (Click here forfull article)

Pollution Exclusion Does Not Bar Coverage For Injuries Caused By
Release Of Toxins From Fire Equipment, Says North Carolina Court
A North Carolina federal district court ruled that a pollution exclusion does not bar coveragefor injuries stemming from the release of toxic foam from firefighting equipment. Colony Ins.
Co. v. Buckeye Fire Equip. Co., 2020 WL 6152381 (W.D.N.C. Oct. 20, 2020). (Click here forfull article)

Kentucky Court Rules That Pollution Exclusion Bars Coverage For
Criminal Claims Against Company And Executives Alleging Submission Of
Fraudulent Dust Samples
A Kentucky federal district court ruled that a pollution exclusion barred coverage for a criminal
investigation and charges against a company and its executives relating to an allegedly
fraudulent submission of dust samples to a federal agency. Barber v. Arch Ins. Co., 2020 WL
6087951 (W.D. Ky. Oct. 15, 2020). (Click here for full article)“Professional Services” Coverage Extends To Printing Receipts At SelfService Kiosks, Says California Court
A California federal district court ruled that professional services coverage extends to claims
alleging that FedEx’s self-service kiosks inadvertently printed receipts with customer credit
card information. FedEx Office & Print Serv., Inc. v. Continental Cas. Co., No. CV 20-4799(C.D. Cal. Oct. 20, 2020). (Click here for full article)

STB News Alert
Click here to read about the Firm’s insurance-related honors.

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D&O Alert:
Delaware Supreme Court Rules
That Appraisal Action Is Not A
Covered “Securities Claim”
The Supreme Court of Delaware ruled that an
appraisal action is not a covered “Securities
Claim” and that D&O insurers have no duty
to pay for pre-judgment interest and defense
expenses incurred in that action. In re Solera
Ins. Coverage Appeals, 2020 WL 6280593(Del. Oct. 23, 2020).

Claim.” The court explained that an appraisal
action does not involve a “violation” of law
or regulation, as required by policy language.
The court reasoned that “violation” must
involve “some element of wrongdoing,”
whereas an appraisal action is a neutral
remedy limited to the determination of thefair value of stock shares. As the court noted,
this conclusion is supported by “an unbroken
line of cases” holding that a statutory
appraisal action “does not involve any inquiry
into claims of wrongdoing.”

A group of shareholders of Solera filed an
appraisal action seeking determination of
the fair value of their shares after Solera was
acquired. The appraisal action found thatthe value of the petitioners’ shares at thetime of merger was actually lower than themerger price. Notwithstanding this positive
result, Solera was required to pay statutory
pre-judgment interest on the fair value of theshares. Solera also paid more than $13 million
in attorneys’ fees and other costs defending
the appraisal action.
Solera’s excess D&O insurers denied coverage,
arguing that the appraisal action was not a“Securities Claim,” defined as a claim “madeagainst [Solera] for any actual or alleged
violation of any federal, state or local statute,regulation, or rule or common law regulating
securities.” The insurers contended that theappraisal action did not allege any “violation”
of law or any wrongdoing. As discussed in
our September 2019 Alert, a Delaware trial
court held that allegations of wrongdoing
are not required by the policy language andthat “violation” can include a demand for
an appraisal, which is an allegation thata company violated stockholders’ right toreceive fair value for their shares in certaintransactions. Additionally, the trial court
ruled that even though Solera’s payment of
the fair value of the shares was not a covered
loss, pre-judgment interest on that payment
may be covered. However, the trial court
declined to grant summary judgment inSolera’s favor, noting factual disputes as towhether other provisions preclude coverage,
whether Solera could have mitigateddamages, and whether Solera actually paid
the interest award.
Last month, the Delaware Supreme Court
reversed the decision, ruling that theappraisal action is not a covered “Securities“Physical Loss Or
Damage” Alert:
Texas Court Dismisses Suit Based
On Hurricane-Related Port
Closures, Citing Lack Of PhysicalDamageA Texas federal district court ruled thatan insurer had no duty to cover businessinterruption losses resulting from Texas
port closures prior to Hurricane Harvey,
finding that the closures were not caused by“direct physical loss of or damage to” covered
property. Evanston Ins. Co. v. AmSpec
Holding Corp., 2020 WL 6152190 (S.D. Tex.
Oct. 20, 2020).
AmSpec, a testing and inspection company
for ships along the Gulf Coast, allegedly
incurred nearly $1 million in business losses
and extra expenses because of port closures
immediately prior to the landfall of Hurricane
Harvey in August 2017. Evanston Insurance
denied coverage, citing the absence of “direct
physical loss of or damage to” any of theports where AmSpec performed its services.

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The court agreed and granted the insurer’ssummary judgment motion.
The policy’s Civil Authority provisionextended coverage to losses sustained whileaccess to covered locations “is specificallydenied by an order of civil authority.” Theprovision further required the civil order
to “be a result of direct physical loss of ordamage to property.” The parties disputed
whether the port closures were “a result of
direct physical loss of or damage to property,
other than at the covered location.” AmSpec
argued that the provision requires only thatphysical damage “was happening elsewhere”
and that the phrase “a result of” indicates aless stringent causal requirement than “dueto” or other verbiage. The court rejected thisassertion, stating that “[t]he general ruleis that civil authority coverage is intended
to apply to situations where access to an
insured’s property is prevented or prohibitedby an order of civil authority issued as a direct
result of physical damage to other premises
in the proximity of the insured’s property.”(Citations omitted).
In addition, the court noted that port closuresinstituted in advance of storm arrival (basedon wind conditions and estimated storm
times) do not constitute direct physicaldamage. The court stated: “When, as here,
there is no prior damage to consider andthe Coast Guard bulletins only containprecautionary language, the causal link
between any prior damage and the civil
authority order is missing.” The court further
rejected AmSpec’s contention that direct
physical loss could be established by damage
that occurred after the issuance of the civil
authority orders and port closures.

Number Of
Occurrences Alert:
Texas Court Rules That Multiple
Cases Of Food Poisoning Over FourDay Period Are Subject To A Single
Occurrence Limit
A Texas federal district court ruled that 124
separate cases of food poisoning stemmingfrom a single restaurant are subject to asingle occurrence limit under a liability
policy. Travelers Cas. Ins. Co. of Am. v.
Mediterranean Grill & Kabob Inc., 2020 WL
6536163 (W.D. Tex. Nov. 4, 2020).
Between August 29 and September 1, 2018,nearly 200 cases of food poisoning werereported by patrons of a restaurant. As aresult, several lawsuits were filed against therestaurant, alleging negligent manufacturing
and food preparation. Nearly 80 of the claims
settled and Travelers offered the balanceof its $1 million “per occurrence” limit tosettle the remaining claims. The restaurant
rejected the offer, and Travelers sought adeclaration that the remaining claims werea single occurrence for purposes of applying
the policy’s per-occurrence limit. The court
agreed and granted Travelers’ summary
judgment motion.
Applying a cause-based test, the court
held that “only one cause gave rise to [therestaurant’s] liability, and that is [therestaurant’s] allegedly contaminated food.”
The court rejected the contention thatmultiple acts “such as a pause or interruption
in business operations during the course of
the negligent conduct,” due to cleaning or theclosing of business during overnight hours
means that there were multiple occurrences.
In so ruling, the court emphasized that therestaurant failed to point to any “intervening
tort or independent negligence whichinterrupted the proximate and continuingcause of the Claimants’ injuries.” Similarly,
the court dismissed the assertion that there
were multiple occurrences because the parties
did not know which particular food products
were contaminated. The court noted that its
ruling was supported by Texas cases holdingthat damages arising from an insured’s
manufacturing defects arise from a single
occurrence, even where there are multiple
incidents of damage.

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Covid Alert:
Courts Across The Country Continue To Rule On Covid-Related Coverage Claims, With
Substantial Majority Finding No Coverage
Case

Jurisdictional
Law

Key Holdings and Notable Findings

Taps & Bourbon
on Terrace, LLC v.
Underwriters at Lloyds
London, No. 00375 (Pa.
Ct. Comm. Pl. Oct. 26,
2020)

Pennsylvania• Restaurant’s coverage suit survives motion to dismiss. Accepting
allegations as true, court concludes that dismissal would be premature
given the “rapidly evolving” law relating to Covid-related insurance
coverage.

Founder Inst. Inc. v.
Hartford Fire Ins. Co.,
2020 WL 6268539 (N.D.
Cal. Oct. 22, 2020)

California• Startup company’s coverage suit dismissed because even “[a]ssuming—
for argument’s sake only—that the claim for loss of business income dueto the shelter-in-place orders would otherwise be covered by Founder’sinsurance policy, the claim clearly falls within the virus exclusion.”• Court rejects policyholder’s attempt to “wriggle out of the exclusion byattaching a different label to its loss” in characterizing it as a loss due torespiratory droplets rather than a loss due to a virus.
• In an “abundance of caution,” court allows policyholder to re-plead, butdeems it “unlikely that Founder will ever be able to state a claim,” notingthat “its theory of coverage appears frivolous.”

Boxed Foods Co., LLC v.
California Capital Ins.
Co., 2020 WL 6271021(N.D. Cal. Oct. 26, 2020)

California• Restaurants’ business income and civil authority claims dismissed
because “Pathogenic Organisms Exclusion” bars coverage. Exclusion
applies to “loss or damage caused by, resulting from, contributing toor made worse by the actual, alleged or threatened presence of any
pathogenic organism, whether direct or indirect, proximate or remote, inwhole or in part caused by, contributed to or aggravated by any physicaldamage insured by this policy.”• Court rejects policyholders’ assertion that exclusion is ambiguous ordoes not apply to civil authority coverage, noting that exclusion expressly
applies to any loss directly or indirectly caused by a virus.
• Court rules that discovery is unnecessary to determine the scope andvalidity of the exclusion because policyholders’ proffered interpretations
are unreasonable.

West Coast Hotel
Mgmt., LLC v. Berkshire
Hathaway Guard Ins.
Cos., 2020 WL 6440037(C.D. Cal. Oct. 27, 2020).

California• Hotels’ coverage suit dismissed based on virus exclusion, which precludes
coverage for loss or damage “caused directly or indirectly by . . . [a]ny
virus, bacterium or other microorganism that induces or is capable ofinducing physical distress, illness or disease.” Exclusion is unambiguous
and was conspicuously displayed in policy.
• Court rejects application of “reasonable expectations” doctrine, notingthat it “does not give courts a license to refuse to enforce contract terms
based on one party’s expectations.”• “Direct physical loss of or damage to property,” even if undefined in thepolicy, “plainly requires, at minimum, that the loss or damage be physicalin nature.” Therefore, “temporary loss of economically valuable use” ofhotels due to government orders does not trigger coverage under policy.
• Civil authority coverage unavailable for additional reason thatpolicyholders failed to provide “sufficient non-conclusory allegations”
regarding damage to nearby properties, and instead merely recited thepolicy language without specifying facts that could support recovery.
• Court declines to grant leave to amend complaint, noting that amendment
would be “futile.”

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Case

Jurisdictional
Law

Key Holdings and Notable Findings

Vizza Wash, LP v.
Nationwide Mut. Ins. Co.,
2020 WL 6578417 (W.D.
Tex. Oct. 26, 2020)

Texas• Car wash company’s coverage suit fails to state a claim because evenassuming that claims are encompassed by business income or civil
authority provisions, coverage is barred by virus exclusion. Exclusion
applies to “loss or damage caused directly or indirectly by . . . [a]ny virus,
bacterium or other microorganism that induces or is capable of inducing
physical distress, illness or disease,” “regardless of any other cause or
event that contributes concurrently or in any sequence to the loss.”• Court rejects policyholder’s assertion that exclusion does not apply
because virus was not actually present at insured properties; policy
language excludes loss even “indirectly” caused by a virus.
• Court rejects policyholder’s contention that exclusion is ambiguous,
stating that “the fact that [Nationwide] could have used even more
specific language does not automatically render ambiguous the languagethat [it] actually used.” (Emphasis in original).
• Court dismisses extra-contractual bad faith and statutory claim,
explaining that such claims fail where, as here, the insurer has properly
denied coverage.
• Court also dismisses claims against insurance agent as a matter of law,
citing absence of allegations that agent made any misrepresentations oromissions in order to induce purchase of the policy.
• Leave to amend is denied because future attempts to cure defects would
be “futile.”

Uncork & Create LLC v.
Cincinnati Ins. Co., 2020
WL 6436948 (S.D. W. Va.
Nov. 2, 2020)

West Virginia• Event planning company’s coverage suit dismissed based on failure toallege “accidental physical loss or accidental physical damage.”• Court distinguishes West Virginia case in which physical damage or loss
was found notwithstanding absence of physical alteration to insured
property, explaining that in that case, nearby rock fall made insured
property uninhabitable due to physical threat, whereas here, Covid “hasno effect on the physical premises of a business.”• Court notes that “majority of courts to address the issue . . . have foundthat COVID-19 and governmental orders closing businesses to slow
the spread of the virus do not cause physical damage or physical loss
to insured property,” and deems the reasoning of those cases to be
persuasive.
• Court rejects distinction based on whether a complaint alleges presenceof virus on the premises in order to determine “physical loss or damage.”
See Studio 417, Inc. v. Cincinnait Ins. Co., 2020 WL 4692385 (W.D.
Mos. Aug. 12, 2020) (discussed in July/August 2020 Alert) and Seifer v.
IMT Ins. Co., 2020 WL 6120002 (D. Minn. Oct. 16, 2020) (discussed in
October 2020 Alert). Court notes that even if complaint includes “artfulpleading as to the likelihood of the presence of the virus” on insured
property, the virus “does not threaten the inanimate structures coveredby property insurance policies, and its presence on surfaces can beeliminated with disinfectant. Thus, even actual presence of the virus
would not be sufficient to trigger coverage for physical damage or physicalloss to the property.”

6

Case

Jurisdictional
Law

Key Holdings and Notable Findings

Raymond H. Nahmad
DDS PA v. Hartford
Cas. Ins. Co., 2020 WL
6392841 (S.D. Fla. Nov. 2,
2020)

Florida• Dentist’s coverage suit dismissed for failure to allege “direct physical lossof or physical damage to Covered property.”• Court observes that “[n]umerous other courts across the country havedismissed substantially similar COVID-19-related lawsuits at this stage
for failing to plead actionable claims under the insurance policy.” (Citingcases discussed in our September and October 2020 Alerts).
• “Federal courts in Florida that have examined whether economic losses
caused by COVID-19 business closures or suspensions constitute a ‘direct
physical loss’ or ‘physical harm’ have rejected Plaintiffs’ arguments.”• Civil authority coverage unavailable for the additional reason thatthe complaint fails to allege that access to the insured premises wasprohibited by order of civil authority. “Rather, Plaintiffs allege that theysuspended or reduced their practice because two government orders
required ‘that non-emergent or elective dental care be postponed
indefinitely.’”• Even if policyholder alleged facts to support coverage, a virus exclusion
applies. Exclusion applies notwithstanding policyholder’s assertion thatloss was caused by government orders rather than virus itself.

Real Hosp., LLC v.
Travelers Cas. Ins. Co. ofAm., 2020 WL 6503405(S.D. Miss. Nov. 4, 2020)

Mississippi• Restaurant’s coverage claims dismissed based on failure to allege “direct
physical loss of or damage to property.” Policyholder’s “contention thatloss of property reasonably includes a loss of usability is not sustainable.”• Non-Covid cases from other jurisdictions that deem loss of use
sufficient to trigger coverage are distinguishable because they involved a“pervasive, physical impact on the insured property for which each court
concluded was tantamount to physical loss or damage.”• Coverage is barred, in any event, by a virus exclusion because complaint
expressly states that business was closed as a result of the Covid
pandemic.

MAC Prop. Grp. LLC v.
Selective Fire and Cas.
Ins. Co., No. L-2629-20(N.J. Super. Ct. Nov. 5,
2020)

New Jersey• Bakery’s business loss and civil authority coverage claims dismissed
because virus exclusion bars coverage. Exclusion contains anticoncurrent causation provision, which excludes coverage “regardless ofany other cause or event that contributes concurrently or in any sequence
to the loss.”• In addition to virus exclusion, “Plaintiff points to no direct physical loss
or damage to property which resulted in the order of civil authority.”

Indep. Barbershop, LLC
v. Twin City Fire Ins. Co.,
2020 WL 6572428 (W.D.
Tex. Nov. 4, 2020)

Texas• Barbershop’s Covid coverage suit survives motion to dismiss only withrespect to one claim: potential coverage under a “Virus Endorsement”
that allows for thirty days of coverage for business interruption if “lossor damage to property caused by . . . virus” causes a suspension ofoperations and if “Time Element Coverage applies.”• Policyholder’s argument that pandemic and government orders (rather
than virus) caused the loss fails because exclusionary provision includes
the following language: “regardless of any other cause or event that
contributes concurrently or in any sequence to the loss.”• Court also rejected regulatory estoppel argument (i.e., assertion that
insurance industry misled state regulators by representing that Virus
Endorsement was not an exclusion but rather a clarification of existing
coverage), finding “no basis in Texas law for applying the doctrine ofregulatory estoppel.”• Court will determine class certification issue at a later time.

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Case

Jurisdictional
Law

Key Holdings and Notable Findings

Water Sports Kauai, Inc.
v. Fireman’s Fund Ins.
Co., 2020 WL 6562332(N.D. Cal. Nov. 9, 2020)

Hawaii• Retail store’s business interruption and civil authority coverage claims
fail as a matter of law based on lack of “direct physical loss of or damage
to” property. Court cites “overwhelming majority of courts” that havereached the same conclusion.
• An “imminent threat” of contamination is insufficient to trigger coverage;“[t]here are no facts plausibly alleging an actual exposure at one or more
Sand People stores, much less that an actual physical exposure caused
them to close a particular store or set of stores.”• Court rejects policyholder’s assertion that loss of use of property or
temporary “deprivation of the functionality of property” triggers
coverage.
• Civil authority coverage unavailable for additional reason that“preventative closure orders cannot support a causal link of direct
physical loss of or damage to property.”DAB Dental PLLC v. Main
St. Am. Prot. Ins. Co., No.
20-CA-5504 (Fla. Cir. Ct.
Nov. 10, 2020)

Florida• Dental practice’s coverage suit dismissed. Allegations that presence ofCovid particles at insured property rendered it uninhabitable or unusable
do not constitute allegations of direct physical loss or damage; actual
tangible or structural damage is required.
• Even if allegations were sufficient to give rise to possibility of coverage,virus exclusion applies. Court rejects assertion that exclusion isinapplicable because loss was caused by executive order, rather thanvirus. “This is a narrow application of the Exclusion to the alleged
facts which is not supported by a plain and reasonable reading of thelanguage. . . . [T]he Executive Order would not have been issued had
COVID-19 not created a public health concern necessitating the Order.”• “A plain reading of the Policy language and a consideration of Florida
law lead to the only reasonable interpretation that the mere presence of
COVID-19 on business premises does not constitute a direct physical lossof or damage to property. As such, it is also not a Covered Cause of Lossand cannot serve as the basis for Civil Authority coverage.”

Dime Fitness, LLC v.
Markel Ins. Co., 2020 WL
6691467 (Fla. Cir. Ct. Nov.
10, 2020)

Florida• Fitness company’s coverage claims dismissed based on failure to allege
direct physical loss. Business income loss and restricted access are notdirect physical loss.
• “[T]he Court must evaluate whether the admittedly pure economic loss
alleged here meets the Policy definition of a ‘covered cause of loss.’ Itdoes not. A ‘covered cause of loss’ is a ‘risk of direct physical loss.’ ‘Direct
physical loss’ has been defined by other courts—the consensus of which isthat ‘direct physical loss’ requires a ‘physical alteration of the property.’”• Civil authority coverage fails for the additional reason that “the Executive
Order was issued to address a public health crisis. There was no damage
to other property which caused the issuance of the Executive Order.
Nor was the Executive Order issued in response to a dangerous physicalcondition that caused property damage.”• Court rules that in any event, coverage is barred by the virus exclusion.
Policyholder’s assertions that exclusion is inapplicable or limited by
concurrent causation doctrine are without merit.

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Case

Jurisdictional
Law

Key Holdings and Notable Findings

N&S Rest. LLC v.
Cumberland Mut. Fire
Ins. Co., 2020 WL
6501722 (D.N.J. Nov. 5,
2020)

New Jersey• Restaurant’s coverage suit dismissed based on virus exclusion. Anticoncurrent preamble to exclusion, which states that loss is excluded“regardless of any other cause or event that contributes concurrently orin any sequence to the loss,” negates policyholder’s assertion that loss wascaused by executive order rather than virus.
• Court rejects policyholder’s argument that New Jersey law requires
proximate causation for application of exclusionary language, holdingthat contractual language designed to avoid the efficient proximate
causation doctrine is enforceable.

Mace Marine, Inc. v.
Tokio Marine Specialty
Ins. Co., No. 20-CA-120(Fla. Cir. Ct. Oct. 9, 2020)

Florida• Two scuba and snorkeling companies’ coverage suits dismissed insummary orders. Court states that “direct” and “physical” modify theterm “loss” in the policy, and impose a requirement that “the damage beactual.”California• Restaurant’s coverage suit dismissed for failure to allege “direct physicalloss of or damage to property.” “Plaintiff has alleged no facts suggesting
Plaintiff’s operations were suspended due to a physical alteration of
insured property. . . . In addition, Plaintiff did not allege facts suggesting
the Orders prohibited access to Plaintiff’s premises as a result of damage
to property within one mile as required for Civil Authority Coverage andPlaintiff did not allege facts suggesting its premises were not accessible
due to the Orders.”

Horizon Dive Adventure,
Inc. v. Tokio Marine
Specialty Ins. Co., No. 20CA-159 (Fla. Cir. Ct. Oct.
20, 2020)
Musso & Frank Grill Co.,
Inc. v. Mitsui SumitomoIns. USA Inc., No. 20
STCV16681 (Cal. Super.
Ct. Nov. 9, 2020)• Court rejects policyholder’s contention that policy “can be reasonably
construed to provide coverage for a loss resulting from Plaintiff’s inability
to use or access its property.” Court distinguishes cases involving loss ofuse because those cases involved physical damage to adjacent property or
dispossession of property, neither of which exist here.
• “To the extent Plaintiff argues the term ‘direct physical loss’ must be readbroadly to extend to coverage for when property is seized or renderedunusable for its intended purpose, regardless of whether the property
itself is damaged, this argument is belied by the terms of the Policy itself,
which directly reference physical damage.”• Coverage is also barred by virus exclusion. Court rejects policyholder’sassertion that “predominating cause” of loss were the government orders(rather than the virus).
Chattanooga Prof’lBaseball LLC v. Nat’l Cas.
Co., 2020 WL 6699480(D. Ariz. Nov. 13, 2020)

California, Idaho,
Indiana, Maryland,
Oregon, South
Carolina, Tennessee,
Texas, Virginia, West
Virginia(Court applies thelaw of the “state
which the parties
understood was to be
the principal locationof the insured risk”;
here, the insured riskfor each Plaintiff isthe state where theteam resides)• Minor League Baseball (“MLB”) association’s Covid-related coverageclaims dismissed based on virus exclusion. Court rejects policyholders’assertions that losses were caused by factors other than the virus (e.g., by
government orders or by the MLB’s failure to provide players for games).
• Court also rejects regulatory estoppel argument, stating that the doctrine
has been “rejected by virtually every other state and federal court toaddress the issue [other than New Jersey].” (Citations omitted).

9

Case

Jurisdictional
Law

Key Holdings and Notable Findings

Dino Palmieri Salons, Inc.
v. State Auto. Mut. Ins.
Co., No. CV-20-932117(Ohio Ct. Comm. Pl. Nov.
17, 2020)

Ohio• Salons and Furniture stores’ claims for business interruption, extra
expense and civil authority coverage withstand motion to dismiss.

Hill & Stout PLLC v. Mut.
of Enumclaw Ins. Co.,
No. 20-2-07925-1 (Wash.
Super. Ct. Nov. 13, 2020)

Washington

Brian Handel D.M.D., P.C.
v. Allstate Ins. Co., 2020
WL 6545893 (E.D. Pa.
Nov. 6, 2020)

Pennsylvania• Court accepts as true for purposes of motion to dismiss policyholders’allegations that virus was physically present at insured property andcaused damage to that property.
• Dental office’s coverage suit withstands motion to dismiss.
• Court deems “physical loss of” ambiguous.

• Dental office’s claims for business interruption and civil authority
coverage dismissed based on failure to plead “direct physical loss of ordamage to” property.
• Court rejects policyholder’s “loss of use” argument, noting that it
would need to allege that the functionality of the property “was nearly
eliminated or destroyed” or “was made useless or uninhabitable.”
Reduced operations or income do not meet this standard.
• Civil authority coverage claim fails for additional reason that government
orders limited (rather than prohibited) access to insured property.
• Court rules that, in any event, coverage is barred by virus exclusion.
• Court rejects policyholder’s regulatory estoppel argument.

Graspa Consulting, Inc. v.
United Nat’l Ins. Co., No.
20-23245 (S.D. Fla. Nov.
17, 2020)

Florida• Restaurant entity’s coverage suit dismissed based on failure to plead“direct physical loss of or damage to” property.
• Under Florida law, “direct physical” modified both “loss” and “damage,”which means that the “damage must be actual.” Court states that “itis not plausible how the allegations in this case meet that thresholdwhen Plaintiff’s business merely suffered economic losses as opposed toanything tangible, actual, or physical.”10Missouri Court Dismisses
Complaint Alleging Overcharge Of
Premiums During Covid
A Missouri federal district court dismisseda policyholder’s suit against State Farm,
alleging that the insurer overcharged
premiums due to changes in business activity
during the Covid pandemic. Alissa’s Flowers,
Inc. v. State Farm Fire & Cas. Co., 2020 WL
6555048 (W.D. Mo. Oct. 22, 2020).
The policyholder’s suit, which includes
claims for breach of contract, breach of goodfaith and fair dealing, unjust enrichment
and declaratory and injunctive relief, allegesthat State Farm had an obligation to adjust
insurance premiums in response to reduced
business operations during the Covid
pandemic. The complaint asserts that threeprovisions in the policy obligate State Farm to
reduce premiums based on mandatory Covidrelated business closures: (1) a provision that
reserves State Farm’s right to raise premiums;(2) a provision requiring State Farm toperform an audit during the policy period
and return unearned premiums; and (3) aprovision requiring State Farm to return any
premium credit owed to policyholders.
State Farm argued that the complaint
challenges its insurance rates and rating
system, and must therefore be brought
before the Missouri Department of Insurance(“MDI”) in order to exhaust administrative
remedies before filing in a court of law.
The court agreed. First, the court rejected
the policyholder’s assertion that its claims
challenge State Farm’s premiums, not its
rates, reasoning that allegations of premium
overpayment are “in essence” a “challenge
to State Farm’s rates, rating plan, rating
system and underwriting rules.” Second, thecourt concluded that the policyholder was
obligated to exhaust administrative remedies
prior to suing in court. Missouri statutory law
provides the MDI with the authority to review
insurance rates of insurers doing businesswithin the state and allows claimants to filea written complaint and request a hearing
to challenge an insurer’s rates. See Mo. Rev.
Stat. §§ 379.321, 379.348. The court ruledthat these administrative remedies must be
exhausted prior to judicial action.
In so ruling, the court rejected thepolicyholder’s contention that administrative
remedies were “permissive” rather thanmandatory. The court acknowledged thatthe statutory language indicates that “aninsured may choose whether to avail itselfof the complaint procedures set forth”
therein. However, the court concluded thatadministrative exhaustion was required. The
court therefore dismissed the complaint forlack of subject matter jurisdiction.
The policyholder has appealed this decisionand similar suits alleging premium
overcharge during the pandemic have been
filed in other jurisdictions. We will keep
you appraised of developments in thisemerging area.

Pollution
Exclusion Alerts:
Nebraska Supreme Court Rules
That Pollution Exclusion In
Property Policy Bars Coverage For
Methamphetamine Vapor In Rental
House
The Supreme Court of Nebraska ruled thata pollution and contamination exclusion
applied to claims alleging property damage
stemming from methamphetamine
production or use within a rental property.
Kaiser v. Allstate Indem. Co., 307 Neb.
562 (Oct. 23, 2020). The court rejected thepolicyholder’s assertion that the exclusion was
ambiguous because terms such as “irritants”
or “contaminants” were not defined. The court
also dismissed the contention that a “sudden
and accidental” exception applied to restore
coverage, explaining that even if accidental,
the damage occurred over a significant periodof time, rather than abruptly. The court
reasoned that the policyholder’s argumentthat the methamphetamine vapors “quickly
bonded to most surfaces throughout therental house” was irrelevant because the11determinative issue is the “whole loss”
resulting from the methamphetamine use,“not its component parts.”

Pollution Exclusion Does Not Bar
Coverage For Injuries Caused
By Release Of Toxins From Fire
Equipment, Says North Carolina
Court
A North Carolina federal district court
ruled that a pollution exclusion does not
bar coverage for injuries stemming fromthe release of toxic foam from firefighting
equipment. Colony Ins. Co. v. Buckeye Fire
Equip. Co., 2020 WL 6152381 (W.D.N.C. Oct.
20, 2020).
Hundreds of underlying cases against thepolicyholder alleged that its firefighting
equipment products contained toxic
substances, resulting in bodily injuries tofirefighters and others. The suits alleged
direct exposure to claimants as well as
indirect exposure through the environment(e.g., well water sources). Colony argued it
had no duty to defend the suits based on apollution exclusion that applies to injuries“which would not have happened in whole
or in part but for the actual, alleged, or
threatened discharge, dispersal, seepage,migration, release or escape of ‘hazardous
materials’ at any time.” The policyholder
conceded that the exclusion bars coveragefor the environmental exposure claims, butargued that Colony was obligated to defend
the direct exposure claims.
The court granted the policyholder’s summary
judgment motion, ruling that under North
Carolina precedent, the words “discharge,
dispersal, seepage, migration, release, or
escape” are “environmental terms of art” andthat “policy exclusions using this language
require traditional environmental pollution todeny coverage to an insured.”

Kentucky Court Rules That
Pollution Exclusion Bars Coverage
For Criminal Claims Against
Company And Executives Alleging
Submission Of Fraudulent Dust
Samples
A Kentucky federal district court ruled thata pollution exclusion barred coverage for acriminal investigation and charges against

a company and its executives relating toan allegedly fraudulent submission of dust
samples to a federal agency. Barber v. Arch
Ins. Co., 2020 WL 6087951 (W.D. Ky. Oct.
15, 2020).
Armstrong, a coal company, was obligated tosubmit dust samples to the Mine Safety and
Health Administration. A federal criminal
investigation and subsequent criminal actions
alleged that Armstrong and its employees
had submitted fraudulent dust samples. Archdenied coverage, arguing that a pollution
exclusion applied, among other things.
The court agreed and granted the insurer’ssummary judgment motion.
Armstrong argued that the mere presenceof coal dust in the mine does not trigger the
exclusion unless there is “actual or threateneddischarge” of coal dust. Further, Armstrong
claimed that the exclusion was inapplicablebecause the criminal charges were limited
to fraudulent reporting of dust monitoringand samples and did not speak to the actual
release of dust into the environment. The
court rejected these assertions, stating thatthe exclusion not only excludes losses fromthe threatened or actual release of pollutants,
but also for any claim “arising from, based
upon, or attributable to any” direction orrequest “to test for” or “monitor” pollutants.
In addition, the court rejected Armstrong’s
contention that coal dust is not a pollutant
where, as here, it is confined inside the minerather than dispersed into the environment.

Professional
Services Alert:“Professional Services” Coverage
Extends To Printing Receipts At
Self-Service Kiosks, Says California
Court
A California federal district court ruled thatprofessional services coverage extends toclaims alleging that FedEx’s self-service
kiosks inadvertently printed receipts withcustomer credit card information. FedEx
Office & Print Serv., Inc. v. Continental
Cas. Co., No. CV 20-4799 (C.D. Cal. Oct. 20,
2020).

12

FedEx uses self-service kiosks that offer
various services, such as printing, scanningand copying. The kiosks are connected toa payment card scanner, which requires
customers to scan their credit cards prior touse. In April 2017, a software update of thescanning devices inadvertently “unmasked”
extra credit card digits, which were thenprinted on kiosk receipts in violation offederal statutory law. Thereafter, consumerclass actions against FedEx alleged violationsof the Fair and Accurate Transactions
Act (“FACTA”).
FedEx argued that the FACTA violations were
“Wrongful Acts” resulting from “Professional
Services” under its liability policy. Continental
did not dispute the assertion of a “Wrongful
Act,” but argued that the FACTA actions
are not covered because printing a receipt
is not a “Professional Service.” Continental
cited cases that distinguish between theact of providing a substantive professional
service unique to a particular business, andthe “separate, administrative act of billing,which is common to all businesses.” Thecourt deemed those cases inapposite fortwo reasons. First, the Professional Service
definition at issue listed a series of services,
followed by the phrase “and services related
thereto.” The court held that this “modifying
language” “substantially broadens theprovision’s scope” so as to encompass theprinting of a receipt for services rendered.
Second, the court emphasized the natureof the professional services provided by the
FedEx kiosks, stating:the line between a billing matter anda rendered service becomes blurrier
when the services at issue are not “thephysical or intellectual acts of service
one commonly associates with doctors
or lawyers,” but services are provided
by a self-use, multi-function machinethat operates only after swiping a credit
card. . . . FedEx’s process of printing a
receipt is not merely an administrative
task inherent to all businesses. Rather
it is one part of an integrated process
unique to FedEx’s business model in theperformance of providing professional
services through a self-service, multifunction kiosk.

STB News Alert
The New York Law Journal selected Simpson
Thacher as its 2020 Litigation Departmentof the Year in the Insurance category. In
connection with this honor, Mary BethForshaw was featured in a Q&A profilein which she discussed the Department’s
numerous successes in significant insurance
and reinsurance matters throughout thepast year and highlighted the Firm’s recent
work on emerging and cutting-edge issues,
including coverage litigation relating to the
opioid epidemic and the Covid pandemic,
among others. Click here to read the fullarticle.

13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.

Mary Beth Forshaw+1-212-455-2846
mforshaw@stblaw.com

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

Elisa Alcabes+1-212-455-3133
ealcabes@stblaw.com

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

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

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

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

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

Jonathan T. Menitove+1-212-455-2693
jonathan.menitove@stblaw.com

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

Craig S. Waldman+1-212-455-2881
cwaldman@stblaw.com

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

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

Susannah S. Geltman+1-212-455-2762
sgeltman@stblaw.com

This edition of the
Insurance Law Alert was
prepared by Bryce L. Friedman
bfriedman@stblaw.com /+1-212-4552235 and Susannah S. Geltman
sgeltman@stblaw.com /+1-212-4552762 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.
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