Fireman’s Fund wins Calif. COVID-19 physical loss lawsuit
Attorneys for Fireman’s Fund Insurance Company claimed a significant victory this month in a lawsuit filed by a California hotel chain that sought policy benefits claiming the COVID-19 virus had physically transformed its insured properties that resulted in losses and damages.
Fireman’s Fund refused to cover the losses, saying the virus could not cause direct physical loss or damage to property, and the hotel chain, Marina Pacific Hotel & Suites, filed its legal action.
Thousands of such COVID-19 lawsuits claiming physical loss or damage from the virus have been filed across the country with only four going to trial thus far, according to the University of Pennsylvania’s Covid Litigation Tracker. All but one of the trial cases was found in favor of the insurer and that case is on appeal. The majority of cases have determined COVID losses cannot satisfy the insurance requirements for property loss or damages.
1st Calif. COVID-19 lawsuit for physical loss
In the California case, which was the first COVID-19 business interruption trial there, the jury took just 90 minutes following a three-week trial to return a verdict for Fireman’s finding that the COVID-19 virus does not cause physical loss or damage to property as required under the property insurance policy.
“We think these trials, particularly ours in California, really validate the insurance industry’s decision to deny these claims from the very beginning,” said Brett Ingerman, partner at DLA Piper, which represented Fireman’s Fund. “The familiar refrain from the plaintiffs’ bar was, ‘well, if you just let us get to trial, we’d be able to prove that this virus causes physical loss or damage to property.’ And we think our case puts the lie to that claim.”
The California COVID-19 lawsuit for physical loss was brought by Marina Pacific on behalf of one of its properties, Hotel Erwin a boutique lodging in Venice Beach, and alleged breach of contract, bad faith, unfair competition and elder abuse, the latter of which was an attempt to speed up trial scheduling which is allowed under California law if the plaintiff is elderly.
The hotel said it was entitled to policy benefits because the virus caused the suspension of operations and caused them to incur extra expense, adopt remedial precautionary measures, and attempts to restore and remediate the air and surfaces at the insured properties that were damaged by COVID-19. In addition, access to the insured properties had at times been prevented or limited by government orders issued “in response to the direct physical loss and/or damage caused by Covid.”
“The plaintiff claimed the virus triggered coverage under the business income and communicable disease provisions in their insurance policy,” said John P. Phillips, also a DLA partner. “Fundamentally, they believed, the presence of the virus damaged their property and entitled them to the tens of millions of dollars of income they lost.”
But the jury didn’t buy it.
Attorneys for the hotel told the jury Marina Pacific’s policy “covered all risks unless excluded,” and that there was no exclusion for pandemics or viruses. In fact, the policy clearly included “communicable diseases.”
“The policy’s communicable disease coverage states that Fireman’s Fund will pay for direct physical loss or damage to an insured property caused by or resulting from a covered communicable disease event, including the necessary costs to repair or rebuild insured promptly which has been damaged or destroyed by a communicable disease,” attorney David Schack, representing the hotel, told the jury. “This language explicitly contemplates that a communicable disease such as a virus can cause damage or destruction to property and that such damage constitutes direct physical loss or damage as defined in the policy.”
Hotel occupancy fell, losses sustained
There’s little doubt that the pandemic interrupted business and caused sustained losses. The hotel showed its occupancy fell more than 30%, sometimes more, during the pandemic. But Fireman’s attorneys argued simply that the virus itself caused no physical damage to property covered under the policy.
Despite the drop in occupancy, they showed that from March 1, 2020, to April 30, 2021, 17,412 guests checked into the hotel, riding the elevators, walking across the carpets and floors, sleeping in the rooms, and hanging out in the bar.
“And the reason why these invited guests could stay at the hotel was because the property was all there,” Phillips told the jury. The hotel managers, he said “promised every guest a safe and amazing experience.”
“Science proves that the virus doesn’t damage property,” Phillips told the jury. “It doesn’t damage property in bedrooms, balconies, or on open-air rooftop bars where you can go and enjoy epic views of Venice Beach.”
Moreover, scientists testifying in the case that even if the virus existed on hotel surfaces or floors, it does not constitute damage as defined by the insurance policy.
“The property covered by the policy functioned just the same before, during, and after the pandemic,” Phillips told the jury. “A chair is still a chair even when a virus is sitting on it.”
Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at firstname.lastname@example.org.
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