Business Interruption Insurance: Procedural Win and Procedural Loss for Policyholders

Policyholders Defeat Motion to Dismiss in Studio 417 Inc. et al. v. The Cincinnati Insurance Co.

The Western District of Missouri on Wednesday allowed plaintiffs’ claims to recover business interruption losses due to COVID-19 to proceed, when it denied Cincinnati Insurance Company’s (“Cincinnati”) motion to dismiss. Plaintiffs are salons and restaurants who purchased Cincinnati’s All-Loss insurance policy, providing coverage for direct physical losses.

The Court was persuaded by Plaintiffs’ argument that staff and guests carrying COVID-19 had likely infected their property rendering it ​“unsafe and unusable” and forcing them to ​“suspend or reduce business.” The Court found that, under Missouri Law, ​“direct physical loss” did not require the property be physically altered if contamination made it unusable.

The Court also distinguished the case before it from Gavrilides Mgmt. Co., LLC v. Michigan Ins. Co., a Michigan case we covered last month, in which the Court granted the insurer’s motion to dismiss. The Plaintiffs in Gavrilides failed to allege that COVID-19 had actually entered the property, and so could not support a claim of ​“direct physical loss.”

The JPML Declines To Consolidate

On the same day, the Judicial Panel on Multidistrict Litigation elected not to centralize hundreds of businesses interruption cases filed around the country. In In re: COVID-19 Business Interruption Protection Insurance Litigation, the Panel considered two petitions to consolidate cases against 100 different insurance companies. The Panel concluded that while centralizing cases against a few insurers could be appropriate, any common questions of fact in such a large-scale action would be ​“outweighed by the substantial convenience and efficiency challenges posed by managing a litigation involving the entire insurance industry.“

Kelley Drye & Warren LLP will be closely monitoring the case law as it progresses. Please click here if you would like to be kept abreast of current developments.