New York Court Holds Coverage for Excavation Damage Precluded by Earth Movement Exclusion

According to a recent ruling by a New York appellate court, coverage for excavation damage is precluded by the policy’s earth movement exclusion. In 3502 Partners LLC v. Great American Insurance Co. of New York, Case No. 2021-03449 (N.Y. App. 1st Dep’t Apr. 21, 2022), an insured sued its insurer under a first-party policy, alleging in its complaint that its property sustained damage as a direct result of excavation work at an adjacent lot.

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Accepting Coverage for Part of a Claim May Subject an Insurer to the Appraisal Process Under Tennessee Law

Accepting coverage for part of a claim may subject an insurer to a policy’s appraisal process when the extent of covered damage is in dispute, according to a recent ruling issued by the Eastern District of Tennessee. In Morrow v. State Farm Fire & Cas. Co., Case No. 1:21-CV-00133-DCLC-CHS, 2022 WL 885863 (E.D. Tenn. Mar. 22, 2022), a severe storm with strong winds and tornadic activity damaged the insured’s home in Manchester, Tennessee. After the storm, the insured promptly reported the damage to her home to her insurer. The insured’s policy covered direct physical loss to her home, other structures on her property, and her personal property. The insurer acknowledged that the damage to the insured’s home was covered under the policy and made a payment, following its own estimate of the damage, for her loss. The insured, however, alleged that the insurer failed to determine the actual cost of the damage to her home. She informed the insurer that its payment was insufficient to cover all of the damage and restore her home to its condition before the storm.

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NY Appellate Court: Covid-19 Business Losses Don’t Constitute “Physical” Damage to Property, Don’t Trigger Commercial Property Policies

Covid-19 may cause businesses to be unable to use their property, but loss of use doesn’t constitute the “direct physical loss or damage” necessary to trigger commercial property insurance coverage, according to a first-of-its kind New York appellate court decision issued Thursday.

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Ninth Circuit Finds that “Subsidence Exclusion” Bars Coverage for Landslide Loss

The Ninth Circuit Court of Appeals recently issued an unpublished opinion in Atain Specialty Insurance Company v. JKT Associates, Inc., Case No. 20-16366 (9th Cir., March 11, 2022), finding that a liability policy’s “Subsidence Exclusion” barred coverage for a lawsuit arising out of a landslide. 

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Renewal of Property Policy Requires Living Insured

A policy renewal requires a living insured to form a valid insurance contract, the Sixth Circuit recently ruled. In Boby Davis, et al. v. Westfield Ins. Co., Case No. 21-2797 (6th Cir. Mar. 14, 2022), Della Shields received a yearly homeowner’s insurance policy covering her home in Muskegon, Michigan from 2013 until her death in March 2018. Shields was the sole named insured in the yearly policy declarations.

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True, False, or Simply Wrong? Florida Courts Disagree About Whether ‘False Statements’ Must Be Intentional

A Florida appellate court recently interpreted a “Concealment or Fraud” provision that voids coverage where an insured makes “material false statements” as requiring intentional deception, extending the split amongst the Florida appellate courts. In Vargas v. SafePointe Ins. Co., No. 3D19-1656, 2022 WL 108428 (Fla. 3d DCA Jan. 12, 2022), a homeowner reported a water loss to her property insurer following a plumbing leak. The insurer immediately requested repair invoices from prior claims and photographs of the pre-loss condition of the property. The homeowner, however, never provided this information. Instead, she submitted a sworn proof of loss with an itemized estimate.

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Second Circuit Holds No Coverage for COVID-19 Business Interruption Losses

The Second Circuit has now joined the Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits in holding that no insurance coverage exists for business interruption losses caused by the Covid-19 pandemic and the associated government orders. In 10012 Holdings Inc. v. Sentinel Insurance Co. Ltd., No. 21-80-cv, Slip. Op. (2d Cir. Dec. 27, 2021), the insured fine arts gallery and dealership in New York City sought coverage under three provisions of its insurance policy for losses and extra expenses incurred when it suspended its operations in accordance with government restrictions on non-essential businesses during the Covid-19 pandemic. When the insurer denied coverage, the insured filed suit asserting claims for breach of contract and declaratory judgment. The United States District Court for the Southern District of New York dismissed the claims with prejudice, and the insured appealed to the United States Court of Appeals for the Second Circuit.

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Major Victories for Insurers in Fifth Circuit Regarding COVID-19 Business Interruption Claims

The Fifth Circuit Court of Appeals has joined seven other Circuits in finding no coverage for COVID-19 business interruption claims.[1]  In Terry Black’s Barbecue, L.L.C. v. State Auto. Mut. Ins. Co., 2022 U.S. App. LEXIS 287 (5th Cir. Jan. 5, 2022) and Aggie Invs., L.L.C. v. Continental Cas. Co., 2022 U.S. App. LEXIS 393 (5th Cir. Jan. 6, 2022), the Fifth Circuit considered claims under all-risk policies.  In Terry Black’s Barbecue, the policy included provisions for loss of business income and extra expense.  To trigger such coverages, the policy required that the suspension of operations “must be caused by direct physical loss of or damage to property at the premises.”  The policy’s definition of “period of restoration” was the period of time that begins at the time of loss or damage and ends when the property is “repaired, rebuilt or replaced” or when operations resume at a new location.  Further, the policy contained a restaurant extension endorsement providing civil authority coverage “resulting from the actual or alleged … exposure of the described premises to a contagious or infectious disease.”

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Seventh Circuit Continues String of Insurer Victories in COVID-19 Business Interruption Litigation

At least five Circuit Courts of Appeal have now come out in favor of insurers in COVID-19 business interruption lawsuits.[1] The latest is the Seventh Circuit Court of Appeals in Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 2021 U.S. App. LEXIS 36399 (7th Cir. Dec. 9, 2021). The Court in Sandy Point resolved three claims in one opinion under Illinois law. The three plaintiffs were a dentistry practice, a hotel, and restaurant. Each business was allegedly impacted by orders issued by Illinois’ governor to stem the spread of COVID-19.

Each of the businesses’ policies included a familiar coverage threshold of a “suspension” caused by direct physical “loss” to property at a premises caused by or resulting from a Covered Cause of Loss. “Loss” was defined in the policies as “accidental loss or damage.” The Court observed that by “incorporating the stated definition of ‘loss,’ the [b]usinesses were covered for income losses resulting from direct physical loss or direct physical damage to property. Thus, to survive [the insurer’s] Rule 12(b)(6) motion, they needed to allege that either the virus or the resulting closure orders caused direct physical loss or direct physical damage to covered property.”

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COVID-19 Business Interruption Claims: First California Court of Appeal Decision Holds That Closure Orders Are Not “Direct Physical Loss”

California has been a hotbed of litigation regarding COVID-19 business interruption claims.  The vast majority of the trial courts have held in favor of insurers and against businesses.  Now, the California Court of Appeal has weighed in.  In a published decision, The Inns by the Sea v. California Mutual Insurance Company (November 15, 2021, Case No. D079036), the Fourth Appellate District held that a hotel’s business income loss resulting from the COVID-19 pandemic was not covered.

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About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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