D.C. MO COVID / Pollution Exclusion

COVID Business Interruption Claim Survives Motion to Dismiss

Courts remain divided as to whether insureds’ business interruption lawsuits stemming from COVID-19 closures have made allegations of fact sufficient to survive a 12(b)(6) or analogous state court motion to dismiss. Recently, the United States District Court for the Western District of Missouri, applying Missouri law, on the one hand, granted Lexington Insurance Company’s (“Lexington”) motion to dismiss while a Nevada State court judge denied defendant Starr Surplus Lines Insurance Company’s (“Starr”) motion to dismiss.

The Missouri District Court found the plaintiff failed to meet its burden of showing it suffered a “direct physical loss of or damage to property” necessary to trigger the relevant coverage provisions. Still further, the court held that even if it found the plaintiff’s claims fell within the realm of “direct physical loss of or damage to property,” dismissal would be appropriate “for the independent reason that Defendant has met its burden of establishing the policy contains an exclusion limiting coverage stemming for losses due to ‘a virus.’”

The Nevada state court found the plaintiff’s allegation that it was “highly likely that the novel coronavirus that causes COVID-19 has been present on the premises of the Grand Bazaar Shops, thus damaging the[ir] property” constituted allegations of “direct physical loss” or damage to property sufficient to survive Starr’s motion to dismiss.

Additionally, the court found the insured’s reading of Starr’s “Pollution and Contamination Exclusion” as applying to “traditional environmental and industrial pollution and contamination” rather than “naturally-occurring, communicable disease” proved reasonable. Zwillo v. Lexington Ins. Co., No. 4:20-00339-CV-RK, (W.D. Mo. Dec. 2, 2020); JGB Vegas Retail Lessee LLC v. Starr Surplus Lines Insurance Co., No: A-20-816628 (Clark Cnty., Nev. Dist. C. Nov. 30, 2020).