CHICAGO — An insurer of commercial properties has asked a federal judge to revisit his decision allowing barber shops to move forward with a lawsuit challenging a denial of insurance coverage for COVID losses, as the insurer argued the modifications the hair care shops installed to respond to COVID restrictions were "improvements" to the property, and not losses at all.
In an opinion issued June 1, U.S. District Judge Charles Kocoras denied a request to dismiss a class action lawsuit brought against Chicago-based Continental Casualty, by Legacy Sports Barbershop and Legacy Barber Academy, of Virginia Beach, Va., and Panach, an upscale salon in Santa Monica, Calif.
In arguing for dismissal, Continental argued the properties in question suffered no physical loss or damage related to the pandemic. But Kocoras agreed with the plaintiffs, who alleged COVID-19 was 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.”
In a June 28 motion, Continental asked Kocoras to reconsider his ruling, arguing his opinion was flawed because the plaintiffs modified their own properties.
“Neither an outdoor patio nor social distancing barriers are encompassed by any reasonable definition or construction of ‘direct physical loss of or damage to’ property as that phrase is readily understood,” Continental said. “A new patio (and the other modifications) is an improvement and not damage.”
Continental further said the policies have an exclusion for damages caused, directly or indirectly, by enforcement of laws or ordinances that regulate property use, construction and repair.
According to the insurer, represented by attorneys Brent R. Austin, Michael L. McCluggage and others with the firm of Eimer Stahl LLP, of Chicago, “hundreds of decisions have been issued around the country addressing similar claims under identical or materially similar policy language.”
But Continental, the motion continued, “is unaware of any court that has adopted the view that coverage is triggered by physical changes, alterations or modifications — such as building a patio — that an insured makes to its premises in response to the government orders issued in response to the COVID-19 pandemic.”
In his June 1 opinion Kocoras said this case differed from earlier rulings that favored insurers, because those policies “involved unequivocal virus exclusions,” whereas the policies at issue in this matter are missing language that is “clear, sweeping and all-encompassing.”
Continental asked Kocoras to dismiss the plaintiffs’ first amendment complaint with prejudice. Alternatively, it wants the judge to clarify how the Legacy plaintiffs’ claims can survive because only Panach said it completed property modifications to deal with COVID and government-mandated mitigations.
The reconsideration motion also said Kocoras’ initial opinion didn’t adequately address claims arising under Continental’s policy provision concerning civil authority, saying he didn’t analyze if government orders directly resulted in losses, were connected to property damage at other locations or prevented the plaintiffs from physically accessing their property.
Continental also said Kocoras should’ve addressed claims regarding “what plaintiffs term ‘sue and labor,’ ” noting such a provision isn’t a grant of coverage, but rather a clause that merely “imposes a duty on the insured to protect the property.”
The businesses are represented in the action by attorney Adam J. Levitt, of the firm of DiCello Levitt Gutzler LLC, of Chicago.