CHICAGO — A federal judge said he won't cut a class action brought by a barbershop, hairdressing school and salon against their insurer, in which they claim they and many other businesses who made alterations to their businesses and operations in response to COVID-19 restrictions are owed coverage for their losses.
Legacy Sports Barbershop and Legacy Barber Academy, of Virginia Beach, Va., and Panach, an upscale salon in Santa Monica, Calif., signed their names to a class action lawsuit against Continental Casualty Company in federal court in Chicago, alleging the insurer improperly rejected claims under several policy provisions, including business income, extra expense and civil authority.
Continental moved to dismiss the plaintiffs’ complaint, arguing the properties in question suffered no physical loss or damage. In an opinion issued June 1, U.S. District Judge Charles Kocoras denied that request to toss the action.
Unlike earlier instances where insurers were able to avoid COVID-related lawsuits, because the virus didn’t directly affect the insured businesses, Kocoras wrote the plaintiffs here “have alleged the requisite physical damage and alteration.”
“We believe a plaintiff needs to allege that their property underwent a ‘distinct, demonstrable, physical alteration’ as the result of COVID-19,” Kocorwas wrote. He acknowledged a granted motion to dismiss in a 2020 lawsuit, Bradley Hotel Corp. v. Aspen Specialty Insurance, and said the plaintiff there “only alleged the loss of use of their property.”
But the plaintiffs challenging Continental, he continued, alleged COVID-19 was actually present on their properties and, as a result, “they needed to build a new outdoor patio, install social distancing barriers and germ sanitation stations, and remove workstations in order to promote proper social distancing. Thus, we believe that plaintiffs have sufficiently alleged that the Properties underwent a ‘distinct, demonstrable, physical alteration’ and therefore suffered ‘physical loss of or damage to’ the properties.”
The plaintiffs also argued the presence of COVID-19 at other properties is what caused shutdown orders from governors, that kept them from accessing their own businesses.
Continental further contended any losses ascribed to coronavirus are excluded from coverage. Kocoras again said this case differed from earlier rulings that favored insurers, because those policies “involved unequivocal virus exclusions.”
The policies at issue in this matter, however, do not have language that is “clear, sweeping and all-encompassing,” Kocoras wrote. “The policies do not specifically exclude from coverage damage caused by viruses, but instead exclude from coverage damage caused by the ‘presence, growth, proliferation, spread or any activity of ‘fungi,’ wet or dry rot, or ‘microbes.’ ”
Although the policy operates under a definition of microbes as “any non-fungal micro-organism or non-fungal, colony-form organism that causes infection or disease,” the exclusion says “ ‘microbe’ does not mean microbes that were transmitted directly from person to person.”
With that ambiguity present, Kocoras wrote, it isn’t clear “whether ‘microbe’ as defined under the policies includes a virus such as SARS-CoV-2 because that virus, of course, can spread from person to person. We therefore do not believe Continental has established that the claims are excluded from coverage at this stage.”
Kocoras emphasized his ruling only means the plaintiffs’ pleadings were sufficient to let the case proceed to discovery, which “will shed light on the merits of plaintiffs’ allegations, including the nature and extent of COVID-19 on their premises.”
Kocoras gave Continental 21 days to respond to the complaint.
The businesses are represented in the action by attorney Adam J. Levitt, of the firm of DiCello Levitt Gutzler LLC, of Chicago.
Contiental is defended by attorneys Brent R. Austin, Michael L. McCluggage and others with the firm of Eimer Stahl LLP, of Chicago.