While the court determined the virus or bacteria exclusion precluded coverage under business income, extra expense, or civil authority for the insured’s COVID-19-related shutdown, the insurer’s motion to dismiss was denied based upon the communicable diseases coverage. Salon XI Color & Design Group v. W. Bend Mut. Ins. Co.,, 2021 U.S. Dist. LEXIS 21298 (E.D. Mich. Feb. 4, 2021).
The Governor’s order on COVID-19 forced the insured to close its salon. The insured tendered to West Bend for business interruption losses that occurred during the closure required under the Executive Order. Coverage was denied and suit was filed.
The court found the insured had plausibly alleged that the COVID-19 particles infected the property, exposed staff and patrons, and prevented the insured from using its property for its intended purpose. This was enough to survive a motion to dismiss when the policy promised to cover “direct physical loss or damage” and left “Loss” and “damage” undefined.
The policy included a virus or bacterial exclusion, however, providing that West Bend “will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism . . .” West Bend did not dispute that COVID-19 was a virus. However, in addition to being a virus, COVID-19 was also a “communicable disease” as defined in the policy. The insured argued a special grant of coverage for communicable diseases followed by an exclusion for virus or bacteria could not plausibly exist in the same policy. This contradictory language was ambiguous and was to be construed in favor of the insured.
The court found that the virus or bacteria exclusion was written to exclude “any virus” from the business income, extra expense, and civil authority coverages. Nevertheless, the virus and bacteria exclusion did not preclude the communicable disease coverage. The insured’s claim under the communicable disease coverage survived the motion to dismiss.