(Article from Insurance Law Alert, September 2021)
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A Virginia federal district court granted a policyholder’s motion for class certification in a suit alleging breach of contract and bad faith by an insurer based on its coverage denial for COVID-19 related business losses. Elegant Massage, LLC v. State Farm Mut. Auto. Ins. Co., No. 2:20-cv-265 (E.D. Va. Aug. 19, 2021).
The court concluded that plaintiff met the requirements of Federal Rule of Procedure 23 for purposes of establishing a class of persons or entities within the Commonwealth of Virginia that purchased and sought coverage under the same income loss and/or extra expense provisions as a result of government orders issued from March 2020 forward. In particular, the court concluded that the commonality and typicality requirements were satisfied because the central coverage questions—the presence/absence of “direct physical loss” and interpretation of a virus exclusion—were the same across all class members.
In so ruling, the court deemed unpersuasive State Farm’s assertion that questions of policy interpretation would apply differently to different class members depending on type of business and specific factual scenario. The court acknowledged that plaintiffs may be unable to prove class-wide damages without individualized inquiry, but noted that the need for such individual damage determinations does not foreclose class certification.
Notably, the court rejected a proposed class that would have included nearly 20,000 Virginia policyholders who purchased identical all risk policies, explaining that policyholders who did not file claims with State Farm did not meet the commonality requirement for the declaratory judgment and breach of contract claims. The court held that even if the class were limited to the 111 policyholders that actually filed claims against State Farm, the numerosity requirement of Rule 23 was satisfied.
In a previous ruling in this matter, the court held that “direct physical loss” includes property that is uninhabitable because of an intangible risk. See December 2020 and February 2021 Alerts.