Judge Stephen Bough and the federal court in the Western District of Missouri entered an important order yesterday in a case brought by Studio 417, a hair salon, and several restaurants against Cincinnati Insurance Company. The order denied the insurer’s motion to dismiss, finding the plaintiffs’ COVID-19 coverage allegations were sufficient to move forward. This is an early ruling in the case and subject to change after discovery, but this is a significant step for policyholders pursuing property coverage arising from COVID-19. Most significantly, the court found adequate allegations of “direct physical loss” and noted that the policy offered coverage for “accidental physical loss or accidental physical damage.” Holding that it must give meaning to all terms in the policy, the court found that if “physical loss” was interpreted to mean “damage,” then one of those terms would be meaningless. In other words, the loss of access to or use of the property should be enough to trigger coverage under a standard property policy. It will be interesting to follow this case and to see how it impacts other similar motions pending in courts around the country. Notably, we are aware of at least three decisions on this issue that have favored the insurers. The Studio 417 case appears to be the first win for policyholders and confirms the uncertainty to be resolved over the coming months and years. If your business has a potential COVID-19 claim, you should talk to your insurance professional or a coverage attorney to make sure you’ve adequately considered and addressed your policy’s notice requirements.
