While the insured failed to demonstrate direct physical loss, Crisis Event coverage was still possible. SJP Investment Partners LLC v. Cincinnati Insurance Company, 2021 U.S. Dist. LEXIS 162612 (N.D. Ala. Aug. 27, 2021).
The insured owned a hotel in Birmingham. The state’s public health orders limited operations and caused temporarily closures due to the pandemic. COVID-19 was present in the hotel on a least one occasion. In mid-February 2020, a previous guest informed the hotel that she had contracted the virus and subsequently two hotel employees tested positive for the virus.
Cincinnati denied the claim for business interruption because the policy required physical injury to tangible property. Civil Authority and Crisis Event coverage were also denied.
The insured sued and Cincinnati moved to dismiss. The court there was no business interruption coverage. When an item or structure merely needed to be cleaned, the insured did not suffer a loss which was both “direct” and “physical.” A claim that COVID-19 was present was dismissed for failure to state a claim.
Nor did the Civil Authority claim survive the motion to dismiss. Again, the policy required loss or damage to property other than at covered locations. The mere presence of COVID-19 at a location did not cause loss or damage
Cincinnati argued that directly physical loss to property was also required for Crises Event coverage. The Crises Event coverage, however, modified the property coverage part. The different types of coverage within this section were based on the presence of a “covered crisis event,” not “direct physical loss or damage.” The court could not decide at this point that the insured’s pleadings related to the Crisis Event coverage would be futile. Therefore, the motion to dismiss Crises Event coverage was denied and the insured was given the opportunity to replead its claims for this coverage.