(Article from Insurance Law Alert, February 2021)
For more information, please visit the Insurance Law Alert Resource Center.
A Michigan federal district court granted an insurer’s motion to dismiss coverage claims under policy provisions for business income, extra expense and civil authority, but held that the policyholder’s pleadings as to communicable disease coverage were sufficient to withstand dismissal on the pleadings. Salon XL Color & Design Grp., LLC v. West Bend Mutual Ins. Co., 2021 WL 391418 (E.D. Mich. Feb. 4, 2021).
The insured salon alleged that COVID-19 particles infected its property and exposed staff and customers, thereby preventing the property from being used for its intended purpose. The court held that these allegations plausibly alleged “direct physical loss or damage.” The policyholder also alleged that government shutdown orders were due to the spread of COVID-19 throughout the state, including at and within a mile of the insured premises. The court concluded that these allegations were sufficient to withstand dismissal of the civil authority coverage claim. However, the court ruled that coverage under both provisions was unambiguously excluded by a virus or bacteria exclusion. The court further held that a consequential loss exclusion, which encompasses “delay, loss of use or loss of market,” barred coverage under the business income, extra expense and civil authority coverage provisions.
The court declined to dismiss the salon’s claim for coverage pursuant to a communicable disease provision. The court reasoned that while the virus exclusion applied to other coverage clauses, it does not preclude communicable disease coverage.