By Chip Merlin on March 22, 2020POSTED IN INSURANCE
The first coronavirus lawsuit filed was in Louisiana. The subject policy has no ISO virus exclusion which was discussed in, Coronavirus Insurance Coverage Update—The ISO Circular Regarding the Virus Exclusion. Louisiana attorney John Houghtaling filed the lawsuit, and he will undoubtedly be relying upon a Louisiana case, Widder v. Louisiana Citizens Property Insurance Corporation,1 for the proposition that the coronavirus caused physical damage.
Let me say that I am biased about this. My first gut reaction is that this virus is so dangerous it has us cooped away from each other by government order. I am paying extra money for people to fumigate and wipe the surfaces at our offices in Tampa between our reduced maximum ten-person shifts. The ISO is so concerned about the virus that it issued an exclusion to make certain we cannot claim it as covered property damage. Why would anybody think that such a virus that is on property does not physically change property?
If the non-dangerous teenage pranks of “egging” or “TPing” a house are acts of vandalism and property damage, the dangerous virus on my business property certainly is property damage as far as we all should be concerned. But that is just my gut reaction. People can have different gut reactions which will probably turn on whose side you represent and whether you think insurance policies should be looked at as vehicles actually providing coverage. (My bet is that there is little vandalism with eggs or toilet paper at the present time.)
While Widder eventually held lead dust on property constitutes “property damage,” the facts of Widder were very compelling for that fact. As noted in the policyholder’s briefing:
Defendant’s own engineers stated in their report that the lead needed to be removed and caused direct physical harm to property. As stated above, the engineers recommended that the entire property be gutted, recommended that the children’s toys be destroyed, and other personal property should be destroyed if not properly cleanable. In fact; the damage was so severe that they stated ‘given the concentrations of inorganic lead in the wipe samples, the home is not safe to occupy, especially for the child.’
Accordingly, Defendant’s own engineers have assigned the source of the lead as originating, at least in part, outside the property. This created an ‘event’ which lead to the damage, which lead to the recommendation that the entire property needs to be gutted and contents destroyed.
It helps the claim that “property damage” occurred under policy terms when the insurance company’s engineers say that the lead dust made the property damaged and that the house needed to be gutted and contents destroyed. I doubt that the insurance company’s engineers are going to say the same thing with the current coronavirus.
Still, whether lead dust or a dangerous virus falling upon business, it is the fact the pre-existing state of the property has changed with the addition of these non-maintenance types of physical additions. These are unexpected and dangerous additions to property—I doubt anybody will disagree with that.
Yet, big questions are begging—does anybody have any evidence that something more than a quick fumigation or hygienic cleaning is all that is needed to remove the virus? There is usually a 72-hour shutdown period and the remediation seems to be a lot quicker. And, while I have routinely tested for lead on property to prove its existence, is anybody testing for the virus to prove it is even on the business property? The fact that many restaurants and grocery stores are doing a general fumigation and remediation and then opening the next day or providing take out business is not helpful to find coverage. The safe thing is to simply assume the coronavirus is on the property whether it is or is not. For the direct business income claim, these are pretty significant proof issues that will need to be addressed because those “clever and skeptical” insurance defense attorneys are definitely going to be asking these questions.
Still, the Widder holding is helpful in finding coverage and direct physical loss:
The record is clear that Ms. Widder’s home is contaminated with inorganic lead which makes it uninhabitable until it has been gutted and remediated. For the purpose of determining direct physical loss, this type of loss is similar to the type of loss experienced from Chinese drywall. The issue of what constitutes a direct physical loss was recently addressed in connection with Chinese drywall litigation….the court found that the presence of Chinese drywall, from which gaseous fumes were released, did in fact constitute a direct physical loss. The court stated that when a home has been rendered unusable or uninhabitable, physical damage is not necessary….In this case, we find the intrusion of the lead to be a direct physical loss that has rendered the home unusable and uninhabitable. See, Ross v. C. Adams Construction & Design, 10–852 (La.App. 5 Cir. 6/14/11), 70 So.3d 949 (Although the Chinese drywall is physically intact and functional, its inherent qualities require it to be taken down and replaced. Therefore, there was a direct physical loss.).
The New Orleans based coronavirus case filed in Louisiana is certainly in a favorable jurisdiction for policyholders, and with favorable case law. The policy is one without the ISO virus exclusion. That is a good start for policyholders. These are not the only issues, and I have not spoken about the Civil Authority Coverage aspects of the case, which deserves further comment. I again suggest everybody read Bill Wilson’s post on the case.
Thought For The Day
In America, there might be better gastronomic destinations than New Orleans, but there is no place more uniquely wonderful.
1 Widder v. Louisiana Citizens Prop. Ins. Corp., 82 So.3d 294 (La. App. 2011).