Where companies sued their insurer for their losses stemming from the COVID-19 pandemic and several state governments’ orders temporarily suspending certain business in an effort to combat COVID-19, the insurer’s motion to dismiss was granted. The suit was foreclosed by Fourth Circuit precedent holding there was no coverage absent direct physical loss, material destruction or material harm to their covered premises.
The plaintiffs in this case are companies that own or operate health clubs and trampoline parks. They have sued their insurer for their losses stemming from the COVID-19 pandemic and several state governments’ orders temporarily suspending certain business in an effort to combat COVID-19.
Cincinnati Insurance Company, or CIC, filed a motion to dismiss the amended complaint, which has been fully briefed. Plaintiffs have filed a motion to certify question to the Supreme Court of Virginia, which is also fully briefed, and is opposed by CIC.
This case is controlled by the Fourth Circuit’s published opinion in Uncork and Create LLC v. Cincinnati Insurance Co., 27 F.4th 926 (4th Cir. 2022). That case presented another insurance coverage dispute in which the insured plaintiff sought coverage “for lost business income and other expenses resulting from the Covid-19 virus and a related, state-government order temporarily halting non-essential business activities.”
The Fourth Circuit held that “the policy language requiring a ‘physical loss’ or ‘physical damage’ unambiguously covers only losses caused by, or relating to, material destruction or material harm to the covered property.” And because the insured “did not suffer such a physical loss or damage resulting from the pandemic or government order,” the Fourth Circuit affirmed the district court’s judgment dismissing the case.
To be sure, the Fourth Circuit’s decision in Uncork applied West Virginia law rather than Virginia law, at issue here. Yet the court did not base its decision on any unique or idiosyncratic feature of West Virginia law, but rather standard principles of interpretation of insurance policies that in all material respects mirror Virginia law.
It is unsurprising then, that when pressed at oral argument, plaintiff’s counsel could not identify any unique aspect of West Virginia law that would potentially render the Fourth Circuit’s decision in Uncork inapplicable to the governing Virginia law in this case. Moreover, the Fourth Circuit has subsequently applied its Uncork decision in summary fashion in numerous unpublished cases raising the same or similar issues under other states’ laws.
In their briefing, plaintiffs do not even cite Uncork or the Fourth Circuit’s unpublished orders applying it, much less attempt to distinguish them. Plaintiffs do recognize, as they must, that “insurance companies have largely been successful in federal courts.” However, plaintiffs argue that the court should nonetheless rule in their favor for two reasons: (1) because “viruses are physical objects,” which, though they can’t be seen, “cause losses and damage — both to human life and property” and (2) the “better reasoned opinions” have come out in their favor, and the Supreme Court of Virginia has not squarely addressed the issue in a published opinion.
Plaintiffs mostly rely on Elegant Massage, LLC v. State Farm Mut. Auto.
Ins. Co., 506 F. Supp. 3d 360 (E.D. Va. 2020), for the proposition that, “[t]he phrase ‘direct physical loss’ has been subject to a spectrum of interpretations in Virginia on a case-by-case basis, ranging from direct tangible destruction of the covered property to impacts from intangible noxious gasses or toxic air particles that make the property uninhabitable or dangerous to use.” Significantly, however, the district court’s decision in Elegant Massage was issued well before the Fourth Circuit’s opinion in Uncork. Moreover, an extensive review of the decisions of other courts in Virginia makes clear that “Elegant Massage stands alone.”
Accordingly the court will dismiss plaintiffs’ breach of contract claim for failure to plausibly allege any direct physical loss, material destruction or material harm to their covered premises. Plaintiffs other claims — violation of the implied covenant of good faith and fair dealing, and fraud — also fail.
The court declines plaintiffs’ motion to certify the question to the Virginia Supreme Court. The Fourth Circuit’s published decision in Uncork supplies the relevant rules of decision here and concluded that materially similar policy language was unambiguous and did not support a request to certify the question to the West Virginia court. And the Fourth Circuit has subsequently issued six unpublished opinions resolving similar issues denying claims to insurance coverage without direct physical loss to property. Especially in view of this precedent, the court is not presented with a “difficult” question of state law to support certification.
Defendant’s motion to dismiss granted. Plaintiff’s motion to certify denied.
ACAC Downtown LLC v. Cincinnati Insurance Co. Inc., Case No. 3:20-cv-00049, March 8, 2023. WDVA at Charlottesville (Moon). VLW 023-3-106. 14 pp.