Agency Checklists has reported on recent decisions denying commercial insureds coverage for business interruption losses caused by the COVID-19 pandemic and government closure orders. E.g., See Agency Checklists’ articles of September 21, 2021, “Federal Judge’s Ruling Finds “Cheers” Bar at The Hampshire House Has No Coverage.”
In the Hampshire House article, Agency Checklist noted that:
Under our dual system of state and federal courts, federal courts deciding suits between a Massachusetts insured and a California insurer, as in this case, must follow Massachusetts law as stated by Massachusetts appellate courts. If the Massachusetts Supreme Judicial Court or Appeals Court extended the definition of “direct physical loss” to include virus contamination, the federal courts would have to apply that decision.
The Supreme Judicial Court will give the final word on COVID-19 coverage
The Supreme Judicial Court announced last week that it was seeking amicus curiae briefs from interested parties in the case of Vervein Corp. d/b/a Coppa and others vs. Strathmore Insurance Co. and another.
Vervein’s appeal involves commercial property policies insuring three restaurants. Vervein sued its insurer, Strathmore, and its insurance agent, Commercial Insurance Agency, of Belmont.
Vervein sued Strathmore and Commercial in the Superior Court. Its complaint sought declaratory relief and damages for breach of contract and unfair claim practices in violation of G. L. c. 93A and 176D against Strathmore on two policies. One policy insuring one of the three restaurants owned by Vervein had a virus exclusion. Vervein sued Commercial, the insurance agent that placed the policy with the virus exclusion, alleging that if the virus exclusion provision in that policy applied, then Commercial was negligent in procuring that policy for the Vervein.
In the Superior Court, the judge found Vervein had no coverage for its business interruption losses based on the COVID-19 pandemic and the government civil closure orders without regard to the virus exclusion in the one policy. The judge’s ruling found no coverage under the two Strathmore policies and that Commercial had no liability
Vervein appealed to the Appeals Court. After the parties had completed their briefing in that court, the Supreme Judicial Court entered an order on September 16, 2021, transferring Vervein’s appeal to it from the Appeals Court.
The Supreme Judicial Court’s announcement request amicus briefs on three issues
The Court identified three issues in the Vervein appeal which it will address and for which it seeks amicus curiae to submit amicus briefs to assist the Court in rendering its decision. As stated by the Court, they are:
1. Where “all-risk” commercial property insurance policies provide coverage for loss of “business income and extra expense” when there is a “direct physical loss of or damage to” insured property, whether the COVID-19 pandemic and governmental closure orders satisfy the requirements for coverage.
2. Where “all-risk” commercial property insurance policies provide coverage when a covered risk causes damage to non-insured property within one mile of insured property, and a “civil authority” acts to “prohibit access” to a geographic area that includes the insured property, whether the COVID-19 pandemic and governmental closure orders satisfy the requirements for coverage.
3. Whether a virus exclusion provision of an “all-risk” commercial property insurance policy excludes coverage for losses
The Supreme Judicial Court’s decision concerning whether the combination of the COVID-19 pandemic and the resulting governmental closure orders satisfy an “all-risk” commercial “direct physical loss of or damage to” requirement will affect all the lawsuits pending in the Massachusetts state and federal courts arising out of Massachusetts insurance contracts. However, a decision that finds any coverage at all would affect all existing commercial property insurance policies in Massachusetts.
The Court’s notice seeking amicus briefs recognized the importance of the issues and requested that: “In order to assist the court, amicus briefs should focus on the ramifications of a decision and not solely on the interests of amici.”
Is the Supreme Judicial Court’s decision a foregone conclusion of no coverage?
While lower federal courts and state courts have found against coverage, and Agency Checklists opined early in the pandemic that the words “direct physical loss or damage” to property in the standard commercial property policy barred coverage, (See Agency Checklists’ article of March 17, 2020, “Business Interruption Coverage & The Coronavirus Pandemic,”), the request for amicus briefs references the term “all-risk” in each of the three issues that the Court will decide.
Ultimately, the Supreme Judicial Court of Massachusetts has stated that when in doubt, it will “consider what an objectively reasonable insured, reading the relevant policy language, would expect to be covered.”
The lower courts have had no doubts about the objective meaning of the terminology, “direct physical loss or damage.” However, an insured buying a policy that provides “all-risk” coverage for “business interruption” could reasonably assume that all externally caused business interruptions had coverage without deep-diving into the policy language.
Sometimes, courts find labels such as “all-risk” important. The “Commercial General Liability Policy” or CGL originally was sold by the insurance industry as a “Comprehensive General Liability Policy” or CGL until courts indicated they were reluctant to limit the coverage of a policy sold as a “comprehensive” policy.
Whether in this case, the Supreme Judicial Court would find the labeling of the policy as “all-risk” superseding the requirement of “direct physical loss” seems doubtful.
Interested parties may download Vervein’s, Strathmore’s, and Commercial’s briefs
The Vervein appeal has a January 2020 date scheduled for oral argument. Under the Supreme Judicial Court’s rule for amicus briefs, “an amicus curiae shall file its brief no later than 21 days before the date of oral argument for that case unless the appellate court or a single justice for cause shown shall grant leave for later filing.”
Any interested in the Vervein appeal can review the Supreme Judicial Court docket and download the brief and reply brief filed by Vervein, and the opposing briefs filed by Strathmore and Commercial Insurance Agency by clicking here: Vervein Corp. d/b/a Coppa and others vs. Strathmore Insurance Co. and another, SJC docket # 13172.