Mascoutah dentist Erik Taube argues that his lockdown loss suit against insurer Twin City Fire Insurance Company should not be dismissed because his claims survive the virus exclusion and the closures resulting from government orders caused physical losses of property.
Taube filed his response to Twin City’s motion for judgment on April 9 arguing that under the defendant’s assertion that coverage only exists if the business is physically infiltrated with the virus, he is faced with a Catch-22 in order to recover damages.
“Plaintiff would have to keep the property fully open in defiance of governmental orders and guidance to allow for an infiltration that triggers coverage, but doing so would likely constitute a failure to use reasonable means to save and preserve the property from further damage, thereby triggering the exclusion,” the response states.
Twin City filed a combined motion for judgment on the pleadings on March 3 through attorney Patrick Kenny of Steptoe & Johnson LLP in Chicago.
Twin City is plaintiff Erik Taube’s property insurer and argues that the dentist’s virus-related losses are not covered because his policy has a virus exclusion and he fails to allege direct physical loss or damage to property.
“The novel coronavirus undisputedly is a virus, and plaintiff explicitly alleges that the coronavirus caused its losses,” the motion states.
“Plaintiff does not allege that anything physical happened to his property at all,” it continues. “In fact, plaintiff expressly alleges he experienced no physical loss: ‘Plaintiff’s losses were not caused by the presence of viruses in their premises. There is no evidence that the virus has ever been in their premises.’”
Twin City argues that “the vast majority of courts” have concluded that similar COVID-19 business interruption claims do not allege physical loss or damage.
“While Twin City does not dispute that measures to slow the spread of the novel coronavirus have resulted in broad disruption to the economy, the unprecedented economic fallout from a global pandemic does not provide a basis to override the plain terms of an insurance contract,” the motion states. “The policy simply does not cover plaintiff’s losses.”
The defendant further argues that the government orders in response to the virus do not save Taube’s claims.
“First, the virus is the cause of the plaintiff’s losses as the orders only exist because of the virus,” the motion states.
“But, even if the virus were just one cause of loss, the virus exclusion would still apply because it applies to losses caused ‘indirectly’ by a virus ‘regardless of any other cause or even that contributes concurrently or in any sequence to the loss.’ Furthermore, government orders aimed at slowing the spread of the virus are not a covered cause of loss under the terms of the policy and, therefore, cannot trigger coverage,” it continues.
Taube filed his response through attorney Kevin Green of Goldenberg Heller & Antognoli PC in Edwardsville.
Taube argues that the virus exclusion in his policy does not apply because it requires a virus in the plaintiff’s premises, which he does not allege.
“The court must give meaning to the language defendant actually used,” Green wrote. “If, as it contends, coverage is excluded when ‘virus’ anywhere in the world is a direct or indirect cause of loss, there would have been no need to exclude coverage when loss is directly or indirectly caused by ‘presence, growth, proliferation or spread or any activity of … virus.’ Exclusion of ‘virus’ by itself would have been sufficient - with no qualifiers - as in the ISO provision.”
Taube adds that if the virus exclusion does apply, his claim falls within the “limited coverages” that are part of the virus exclusion. For example, the policy covers “falling objects.”
“Thus, if ‘falling objects’ cause a virus that causes the loss, there is coverage,” Green wrote.
“Scientists suspect the virus that causes COVID-19 first infected humans via bat guano. Bat guano is something material that descends freely by the force of gravity, as it falls from the bats while they hang from the ceiling of a cave or while in flight.
“Furthermore, once in humans, the spread of the virus was also the result of ‘falling objects’ - droplets containing the virus … These droplets are material objects that descend freely by the force of gravity,” Green added.
Taube claims Twin City should not be able to rely on the virus exclusion because it was approved as a result of industry misrepresentations.
“Here, the virus exclusion was adopted following misrepresentations by the ISO and the American Association of Insurance Services (AAIS), acting on behalf of insurers like defendant,” Green wrote. “Because a decrease in coverage would likely require premium reductions, ISO and AAIS represented that the virus exclusion was designed only to ‘clarify’ that ‘property policies have not been a source of recovery for losses involving contamination by disease-causing agents.”
“That was false,” he added. “Property policies had been a source of recovery for such losses. As a result of the misrepresentations, states approved inclusion of the virus exclusion without corresponding rate reductions.”
He also argues that the policy provides coverage for “physical loss of” or “physical damage to” property, which are different and distinct. Because both loss of property and damage to property are covered, then coverage should extend to “when real property becomes uninhabitable, unusable, non-functional, or dangerous, even absent structural alteration.”
“If ‘physical loss of’ property only means structural alteration, then the coverage for ‘physical damage to’ property (and the disjunctive ‘or’) would be rendered superfluous,” Green wrote. “So too would exclusions for losses caused by loss of market, radiation, fumes, or dishonest acts of employees, which do not cause physical alterations to property.”
Taube claims he did suffer a physical loss of property due to his inability to use the premises for the “income-generating purposes for which the property was insured.”
Twin City filed a reply in support of its motion on April 23, arguing that “application of the exclusion is not limited solely to situations where the virus is present on insured property.”
“Even if the virus exclusion did not apply, plaintiff’s claims fail for another reason: they allege pure economic losses. Those do not qualify as ‘direct physical loss’ of property, a requirement for coverage,” Kenny wrote.
The defendant also argues that limited coverage does not apply.
“Even if the newly identified ‘specified cause of loss’ - falling objects - could be considered, plaintiff’s arguments fail,” Kenny wrote. “Plaintiff is not sure what the purported ‘falling object’ is - bat guano or respiratory droplets. In any event, the articles that plaintiff cites do not suggest that COVID-19 was caused by the act of bat guano falling: they suggest that the virus was transmitted to humans through inhalation of fumes in the confined space of a bat colony.”
“It is also nonsensical to suggest that virus was the result of falling ‘droplets,’” he added. “The droplets did not cause the virus; they are the virus and are how the virus is transmitted.”
Taube sued Twin City and the Hartford Financial Services Group holding company in the U.S. District Court for the Southern District of Illinois in June 2020. He sought to recover losses as a result of the COVID-19 lockdowns.
Hartford filed a motion to dismiss the complaint in August, arguing that it doesn’t write insurance and didn’t write Taube’s policy or assume any responsibility under it. The defendant argued that a commercial policy with Twin City is not a policy with Hartford.
Chief U.S. District Judge Nancy Rosenstengel agreed. She granted dismissal with prejudice but granted Taube leave to amend the complaint and assert that Twin City operates as an alter ego of the holding company.
All parties filed a joint motion to stay the deadline for Taube to submit an amended complaint on Feb. 26. They asked the court to extend the deadline until 21 days after an order is entered on Twin City’s motion for judgment. Twin City’s motion had not yet been filed when the parties sought to stay the deadline.
“The parties have agreed to this joint motion in an attempt to simplify the current action at this point, potentially to avoid further motion practice with respect to HFSG, and to conserve the resources of the court,” the motion stated.
U.S. District Court for the Southern District of Illinois case number 3:20-cv-565