The Ninth Circuit Court of Appeals delivered favorable decisions for insurers in a trio of rulings last week.
In Mudpie, Inc. v. Travelers Casualty Ins. Co. of America, the Ninth Circuit affirmed the district court’s order dismissing the policyholder’s claims against its insurer. Mudpie, Inc. filed suit on behalf of itself and a putative class of all retailers in California that purchased comprehensive business insurance policies from Travelers that included coverage for business interruption. The dispute hinged on whether the insured's claim for business interruption losses due to government issued COVID-19 closure orders constituted “direct physical loss of or damage” to property. The Ninth Circuit agreed with the district court and held that California courts would construe the phrase “physical loss of or damage to” as requiring an insured to allege physical alteration of property. Additionally, the Court held that the policy’s virus exclusion precluded coverage for the claimed losses. In doing so the Court rejected the insured’s argument that its losses were not precluded virus exclusions because the losses were caused by government’s stay at home orders and not directly by the virus. The Ninth Circuit found that California courts apply the efficient proximate cause of the loss test and the policyholder could not plausibly show that the efficient cause was anything other than the virus.
In Selane Products, Inc. v. Continental Casualty Company, the Ninth Circuit once again affirmed the district court’s ruling dismissing the policyholder’s lawsuit against the insurer. Similar to its decision in Mudpie, the panel held that the policyholder failed to plausibly allege that its property sustained any physical alterations because: 1) the insured did not allege that COVID-19 was present on its property so as to cause any damage, and; 2) the policyholder alleged that the stay at home orders caused it to suspend its operations, but it did not allege that the orders caused its property to sustain any physical alterations. Additionally, the Ninth Circuit held that even if the policy’s microbe exclusion stated that microscopic organisms could cause physical loss or damage to property, the policyholder did not allege that COVID-19 actually caused any damage.
In its third ruling, Chattanooga Professional Baseball LLC, et al. v. National Casualty Company et al., the Ninth Circuit addressed how the virus exclusion applied under the laws of the ten states where the insured baseball teams were located. The Ninth Circuit stated that eight of the ten states – California, Oregon, West Virginia, Idaho, Indiana, Maryland, Tennessee, and South Carolina – have either applied or been persuaded by the efficient proximate cause analysis. Under the efficient proximate cause test, the Ninth Circuit concluded that the district court had correctly concluded that the virus exclusion precluded coverage because under that test a claim is not covered if the main cause of the loss – the efficient proximate cause – is an excluded risk. The Court found that the insureds failed to show that the efficient proximate cause, including the government’s actions, was something other than the COVID-19 virus. With respect to the two remaining states, Texas and Virginia, which used other methods to determine causation, the Court similarly found that the insureds failed to allege that anything other than COVID-19 was the main cause of their losses.
With these decisions, the Ninth Circuit Court of Appeals becomes the fourth Circuit Court of Appeals to find that coverage is not available for COVID claims.