The court denied the insurer’s motion to dismiss a preschool’s claim for business interruption due to COVID-19. An endorsement provided coverage for shutdowns by order or recommendation of government authorities due to a communicable disease. Baldwin Acad., Inc. v. Markel Ins. Co., 2020 U.S. Dist. LEXIS 239916 (S.D. Calif. Dec. 21, 2020).
The preschool closed on March 15, 2020, when a parent who tested positive for COVID-19 had repeatedly visited the school during the prior week. Moreover, the county and state imposed stay at home orders. Therefore, the preschool submitted a business income loss claim to Markel. The claim was denied and the preschool filed suit. Markel moved to dismiss.
The preschool sought coverage under a “Communicable Disease Endorsement” which provided coverage for loss of business income resulting from communicable diseases. The endorsement stated that a shutdown or suspension of operations must be ordered or recommended by a government authority and “result from a Covered Cause of Loss,” which included “‘Communicable disease’ such as, but not limited to meningitis, measles, or Legionnaire’s disease . . .”
There was no dispute that COVID-19 was a “communicable disease.” Markel argued there was no coverage because (1) there was no outbreak at the preschool; (2) the closure was voluntary, occurred before the issuance of government orders, and this was not the result of an order or recommendation from a governmental authority; and (3) any government-ordered closure was not caused by and did not result from anything that happened at the preschool.
The court disagreed. The preschool stated a claim sufficient to survive summary judgment. First, the preschool plausibly alleged the existence of an “outbreak” of COVID-19 at the school. Second, the preschool plausibly alleged that the shutdown of operations was the result of an order or recommendation from the mayor and governor. These allegations were sufficient to state a plausible claim for coverage. The court declined to decide whether the preschool’s claim was outside the scope of the endorsement’s coverage as a matter of law.