Insurer’s Motion to Dismiss COVID-19 Business Interruption Claim Denied

    Determining that government shutdown orders during the pandemic were a physical cause of loss and finding the virus exclusion ambiguous, the court denied the insurer’s motion to dismiss. Risinger Holdings v. Sentinel Ins. Co., 2021 U.S. Dist. LEXIS 192474 (D. E.D. Texas Sept. 30, 2021).

    Risinger owed several orthodontic practices. It held a policy issued by Sentinel which provided business interruption coverage. The policy also included a virus exclusion, which barred coverage for damage caused by “fungi, wet rot, dry rot, bacteria or virus.” Sentinel argued this exclusion barred coverage for business interruption losses caused by government lockdowns during the COVID-19 pandemic.

    The court noted “virus” appeared in different parts of the policy. Another exclusion barred coverage for destruction or corruption of electronic data caused by a virus, malicious code or similar instruction introduced into a computer system. Therefore, this exclusion defined the term “virus” as “malicious code or similar instruction.” “Virus” was not defined elsewhere in the policy. This gave rise to at least a measure of ambiguity.

   Elsewhere, the policy had another exclusion for the enforcement of any ordinance or law which required the demolition repair, replacement, etc., of property due to the presence of fungi, wet or dry rot, bacteria or virus. This meant the term virus was susceptible to at least three different interpretations. It could mean: (1) “malicious code or similar instruction”; or (2) a subcategory of virus capable of causing structural or mechanical damage or failure; or (3) a subcategory of virus capable of inducing physical distress, illness, or disease. Therefore, the policy was ambiguous and had to construed in the insured’s favor. Consequently, the exclusion did not bar coverage.

    The court next considered the policy provision requiring “direct physical loss.” Here, the policy defined the scope of coverage by distinguishing between “direct physical loss of or physical damage to” covered property. The disjunctive “or” in the phrase meant that “physical loss” must cover something different from “physical damage.” Sentinel did not point to anything in the policy that clarified the term “physical loss.” Thus, the “physical loss” component was ambiguous.

    Risinger may have suffered direct physical loss due to the government shutdown orders by being deprived of the use of the physical space of its covered property, or alternately, because of the severe material losses it endured when it was forcibly excluded from its businesses. Accordingly, the policy’s coverage provision applied to Risinger’s claims for business losses due to the government shutdown orders. Sentinel’s motion to dismiss was denied.


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