Consistent with the majority of decisions in courts across the country, a number of Louisiana state and federal courts have recently held that COVID-19 does not cause physical loss or damage to property as required for coverage under most first-party property policies.
In a summary judgment decision issued from the bench in Nite, Nite LLC v. Certain Underwriters at Lloyd’s, London, a Louisiana state court considered whether the state government’s COVID-19 shutdown order triggered “civil authority” coverage under the insured’s property policy. The court began its analysis by quoting the specific policy language at issue, noting that “civil authority” coverage would be triggered where, among other requirements, a “covered cause of loss” causes damage to property other than the insured’s, the damaged property is within a mile of the insured’s property, and access to the insured’s property is prohibited by a civil authority as a result of this nearby damage. In applying this policy language to the record (which included an expert affidavit), the court stated as follows:
I look at this record and it’s simply void of any evidence to establish any physical damage or any physical loss that was caused to any property. And I think everybody acknowledges, you know, COVID damages people not property. And the plaintiff has not shown, also, that this property is either useless or uninhabited. It just claims that the possible presence of the virus on the premises, although neither plaintiff nor the experts show that it’s there, and they acknowledge that . . . ‘it’s not uninhabitable. We’ve had access to go in it’ . . . . here, we don’t have direct physical loss; rather, simply economic loss due to the shutdown.
The court further noted that, “in fact, once the stay-at-home order was lifted, the property was still in the exact same condition, though maybe it was cleaner than it was prior to the [shutdown order].” As a result, the court concluded that the policy’s civil authority coverage was not triggered by the government’s shutdown order, and granted summary judgment for the insurer.
Next, in a decision on the insurer’s motion to dismiss in Muriel’s New Orleans LLC v. State Farm Fire & Casualty Co., a federal court applying Louisiana law considered whether the state’s shutdown order triggered coverage under a property policy’s “physical damage” and “civil authority” coverage provisions. The court cited the policy’s insuring agreements, noting that they required a showing of “direct physical loss.” Because the policy did not define “direct physical loss,” the court relied on Fifth Circuit precedent applying Louisiana law, including Hartford Insurance Company of the Midwest v. Mississippi Valley Gas Co. The court noted that in Mississippi Valley Gas Co., the Fifth Circuit held that the term “direct physical loss” excludes “detrimental economic impact unaccompanied by a distinct, demonstrable physical alteration of the property” under Louisiana law. Applying Mississippi Valley Gas Co. to the instant case, the court found that the insured “does not allege any physical loss that manifested as a demonstrable physical alteration of the premises.” In so finding, the court noted that the insured did not allege that its property was rendered uninhabitable by any individuals who had entered the property or that COVID-19 was physically present on the insured premises.
The Muriel’s New Orleans court further rejected the insured’s “multiple attempts to obfuscate the plain language of the Virus Exclusion,” which excluded loss that would not have occurred in the absence of several enumerated events, including “virus, bacteria or other microorganism that induces or is capable of inducing physical distress, illness or disease.” In applying the exclusion, the court found that “the Virus Exclusion unambiguously excludes coverage for losses resulting from COVID-19.” As a result, the court granted the insurer’s motion to dismiss the complaint for failure to state a claim.
Additionally, in a decision on the insurer’s motion for judgment on the pleadings in Q Clothier New Orleans LLC v. Twin City Fire Insurance Co., a federal court applying Louisiana law considered whether the state government’s shutdown order entitled the insured to coverage under the business income, extra expense, and limited virus provisions of the insured’s property policy. The court began its analysis with the applicable policy language, noting that each relevant provision expressly required a “direct physical loss or physical damage to property.” Mirroring the court’s analysis in Muriel’s New Orleans, the court noted that this term was not defined in the policy and, relying on Mississippi Valley Gas Co., found that term excludes “detrimental economic impact unaccompanied by a distinct, demonstrable physical alteration of the property” under Louisiana law.
Applying Mississippi Valley Gas Co. to the instant case, the court concluded:
Q Clothier’s damages merely reflect economic losses stemming from the government’s order prohibiting access to its stores. Absent evidence that its property sustained physical and demonstrable alteration, Q Clothier’s damages do not meet the Fifth Circuit’s definition of covered physical loss or damage.
The court further quoted the Nite, Nite decision discussed above, noting that “COVID damages people not property.” As a result, the court concluded that the insured’s COVID-related losses did not fall under the policy’s insuring agreements.
The Q Clothier New Orleans court further considered the application of the policy’s virus exclusion. Noting the lack of case authority applying Louisiana law to virus exclusions in COVID-related insurance disputes, the court looked to decisions from other jurisdictions, concluding that “district courts nationwide have reviewed similar claims against Twin City and its affiliates and consistently held that a valid virus exclusion barred coverage for COVID-19 losses.” After discounting the insured’s other arguments, the court found that the unambiguous language of the virus exclusion would have barred coverage for the insured’s losses.
Finally, in Luke St. Pierre v. Transportation Insurance Co. and Lafayette Bone and Joint Clinic v Transportation Insurance Co., a federal court applying Louisiana law granted insurer TIC’s motions to dismiss on the grounds that the complaints in these two actions failed to allege that any insured property suffered harm from COVID-19 or from the related government shutdown orders. In both actions, the policy at issue required that either the insured’s “loss” or its “damage” be “physical” in nature. Citing to Mississippi Valley Gas Co., the court found that regardless of whether the term “physical” modified the term “loss” or “damage,” the policy required “some threshold concept of physical loss or damage to the covered property.” The court then concluded that no such physical loss or damage was alleged in the complaints.
With respect to coverage under the “civil authority” provisions of the two policies, the court noted that these provisions required that loss arise from the action of a civil authority that (a) was issued due to “direct physical loss of or damage to property” and (b) “prohibits access” to the insureds’ premises. Concluding that the insureds failed to allege either “physical loss or damage” or that they were otherwise “prohibited” from entering their property by the government shutdown order, the court denied the insureds’ recovery under the civil authority provision of their policies. As a result, the court dismissed each complaint for failure to state a claim.