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Chubb Unit Asks 11th Circ. To Affirm Virus Coverage Win

Westchester Surplus Lines Insurance Co. urged the Eleventh Circuit on Wednesday to keep intact its COVID-19 coverage win, arguing that a Florida restaurant doesn't allege any physical change to its property but the temporary presence of the coronavirus and related government restrictions.


From Law360 Insurance Authority:


Westchester Surplus Lines Insurance Co. urged the Eleventh Circuit on Wednesday to keep intact its COVID-19 coverage win, arguing that a Florida restaurant doesn't allege any physical change to its property but the temporary presence of the coronavirus and related government restrictions.


The Chubb unit pointed to favorable rulings to back its position by the Eleventh Circuit in Mama Jo's Inc. v. Sparta Insurance Co. and Gilreath Family & Cosmetic Dentistry Inc. v. Cincinnati Insurance Co. , which considered the meaning of "direct physical loss of or damage to property" under Florida and Georgia law, respectively.


"The facts alleged [by Cafe International Holding Co. LLC] are identical to fleeting contamination by flu viruses and common-cold coronaviruses, yet no business has ever obtained property-damage coverage for the economic losses commonly experienced during cold and flu season," Westchester said.


The coronavirus has a different effect on people compared to the flu and cold viruses, but Westchester told the Eleventh Circuit that the lack of any effect from the virus on property — like to IT Italy Ristorante Cafe & Bar in downtown Fort Lauderdale, Florida, owned by Cafe International — remains the same.


Cafe International's coverage suit for pandemic-related losses was tossed May 4 by U.S. Magistrate Judge Jonathan Goodman, who applauded the restaurant's counsel for showing "passion," "creativity" and "tenacity" in their arguments. Ultimately, the judge said there wasn't any alleged physical loss or damage to the restaurant.


On Oct. 15, Cafe International pressed the Eleventh Circuit to revive its coverage suit, arguing pre-pandemic Florida law and the policy language back its position that the presence of the coronavirus at its restaurant caused a physical loss of property given the inability for customers to enter the premises.


Cafe International insisted that the policy doesn't require structural alteration to property to be shown, as suggested by Judge Goodman. It's enough that the loss of use to the property is caused directly by an actual, physical condition like the presence of the coronavirus particles, the restaurant said.


"Harms caused by the presence of a virus fall within that [business income] coverage, a conclusion further supported by the alleged fact that Westchester routinely sells policies with express virus exclusions, but there is no such exclusion in Cafe International's policy," the restaurant said.


In Wednesday's brief, the Chubb unit argued there needs to be tangible alteration to the restaurant. Restrictions to curb the spread of the coronavirus didn't meet that standard, the insurer said, equating the restrictions to "an ordinance requiring bars to close at midnight to reduce neighborhood disruption."


The Eleventh Circuit in Mama Jo's already held there isn't physical loss of property unless the premises underwent a physical alteration as in a fire or collapse, according to Westchester, and in Gilreath, the Eleventh Circuit said neither the coronavirus nor government orders cause physical loss or damage.


Westchester argued the lack of a virus exclusion isn't relevant when there isn't coverage given Cafe International can't show physical alteration to its restaurant. And there isn't a need to certify to the Florida Supreme Court, the insurer said, as 40 state and federal court rulings addressing the question under Florida law favor its position.


"The district court generously applauded Cafe International for 'creativity' and 'outside-the-box thinking,' but in fact its coverage arguments are the same as those advanced by other insureds," the insurance company said. "And they are wrong for all the same reasons."

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