This past week Merlin Law Group attorneys, Amy Currotto and I, had the pleasure of participating in the American Bar Association’s two-day webinar titled “COVID 19: Challenges for Litigators and Underwriters.” As was described in my previous blog post, the online conference allowed property insurance attorneys from many different backgrounds to review and discuss key coverage issues, as well as provide listeners with the insight and arguments being advanced and challenged by policyholders and insurers in the ongoing saga of COVID-19 business interruption litigation.

The webinar consisted of four different panels, each one being comprised of a property insurance defense attorney, a property insurance policyholder attorney, and a moderator. Each panel lasted for one hour, allowing both sides to discuss their selected topic and describe the arguments made on behalf of insurance companies and policyholders.

The four panels were:

  1. Wednesday June 2, 2021: Pleading the Case for Coverage for COVID-19 Losses – What has to be Pled and How. Hosted by Andrew Downs of Bullivant Houser Bailey PC (on behalf of the insurance defense side) and Adam Schwartzbaum of The Moskowitz Law Firm (on behalf of the policyholder side).
  2. Wednesday June 2, 2021: Decisions and Rationale. Hosted by John Garaffa of Butler Weihmuller Katz Craig LLP (on behalf of the insurance defense side) and Anthony Orlando of Merlin Law Group, P.A. (on behalf of the policyholder side).
  3. Thursday June 1, 2021: Pleading Covid-19 Cases – Potential Ethical Pitfalls. Hosted by The Honorable Judge Rex Barbas and Douglas Berry of Butler Weihmuller Katz Craig LLP.
  4. Thursday June 1, 2021: New Policy Provisions and What to Expect. Hosted by Kyle B. Wong of Wong, Kightlinger, & Gray, LLP (on behalf of the insurance defense side) and Amy Currotto of Merlin Law Group, P.A. (on behalf of the policyholder side).

I had the pleasure of analyzing some of the many court decisions and rationale of COVID-19 business interruption insurance cases with John Garaffa, a renowned insurance defense attorney and partner at Butler Weihmuller Katz Craig LLP. John Garaffa’s biography, taken from his firm’s website, reads as:

A Partner at Butler, John Garaffa practices in our Construction, Coverage Defense, and Cyber Losses departments. He has extensive experience with construction defect litigation and cyber coverage and defense.

John has written widely on first-party bad faith, punitive damages, discovery disputes, and on the application of state valued policy laws to property losses in Florida and other Gulf Coast states. He has also served as the Vice-Chair of the Property Insurance Law General Committee within the Tort Trial & Insurance Practice Section of the American Bar Association.

John received his Doctor of Jurisprudence from the University of Minnesota, cum laude, in 1982 and his Master of Laws degree, with distinction, from Georgetown University in 1991. Prior to joining the firm in 2003, John served on active duty for twenty-one years as a member of the Judge Advocate Generals Corps, United States Navy, retiring as a Captain.

As you can tell, John has a more-than-impressive resume; his success and accolades as an insurance defense attorney are even more remarkable, considering he served in the United States military for 21 years prior. It was an absolute pleasure going back and forth with John, as we outlined and debated the many different coverage arguments made on behalf of insurers and policyholders across the country in this ongoing COVID-19 business interruption litigation.

The first case John and I dove into is arguably the most important and cited-to case in the business interruption saga: Mama Jo’s Inc. v. Sparta Ins. Co., 823 F. App’x 868 (11th Cir. 2020).

In Mama Jo’s, the Federal District Court for the Southern District of Florida, applying Florida law, held that that if the alleged direct physical loss or damage can be cleaned, then there is no direct physical loss or damage. The plaintiff in Mama Jo’s was the owner and commercial policyholder of a restaurant and dining establishment. The policyholder argued that the migration of dust and construction debris from a construction project at property adjacent to the insured property caused damage to the property and argued that the dust and debris constituted “direct physical loss.”

While Mama Jo’s was a dispute regarding business interruption coverage that is somewhat analogous to the disputes regarding business interruption coverage as a result of the COVID-19 virus, many courts in the United States continue to uphold and apply the principles outlined by the court in Mama Jo’s to the COVID-19 business interruption claims. For the most part, John and I both agreed that the court’s rationale in Mama Jo’s, in which it opined that the mere “cleaning” of the property in question does not constitute direct physical loss; aka the policyholder needed to plead more than just extensive cleaning efforts.

In the court’s holding granting summary judgment in favor of the defendant, the court noted that “the restaurant was not ‘uninhabitable’ or ‘unusable’ . . . in fact, the restaurant remained open every day, customers were always able to access the restaurant.”

I then posed the question: what would the decision look like if the facts and circumstances of the policyholder’s business interruption claim were instead as a result of COVID-19 and the particles and/or presence of COVID-19 virus, instead of construction debris?

For one, there likely would have been more to plead as to the policyholder’s argument tying their facts and circumstances to the concept of “direct physical loss”; the restaurant operations likely would have been shut-down (temporarily or permanently) by way of local civil authorities and/or government closure orders. In Mama Jo’s, the insured restaurant remained open throughout the span of the claimed business interruption losses.

Most insurance defense attorneys will continue to make the argument that even pleading additional “COVID-friendly” facts on top of the cleaning contention would still not have yielded a positive result for the policyholder, which is a completely understandable and reasonable position that many courts too agree with.

As the policyholder’s advocate, however, I take a contrary position based on several reasons.

First, the facts and circumstances of every COVID-19 business interruption case are extremely significant. John and I both agreed that ultimately the facts of each COVID-19 case are much more important than a normal breach of an insurance contract dispute. More specifically, it certainly makes a difference as the identity of the policyholder in question. Restaurant owners may have a more difficult time making this “direct physical loss” argument due to the fact that the nature of their business was more easily adaptable to the pandemic, by way of shifting to a take-out and/or delivery model. Unlike restaurant owners, businesses such as hotel and/or lodging facilities may have a more compelling argument because their business operations were not as adaptable, thus forcing additional closure and/or more loss of business.

Second, the court’s opinion in Mama Jo’s was based on a “Motion for Summary Judgment” where it reviewed final judgments based on a highly developed factual record. By contrast, the COVID-19 business interruption cases are more than likely being decided at the earliest stage in litigation with a defendant’s “Motion to Dismiss” and/or “Motion for Judgment on the Pleadings” where there is much less of a factual record set in place for the courts to consider.

Lastly, the fact that the construction debris and dust could be wiped away may not be as analogous to the presence of the COVID-19 on the insured property. In reality, the argument is that because the COVID-19 virus exists both on surfaces and in the air, it cannot simply be cleaned in the same way that construction debris and dust could be wiped away like dust on a counter.

Ultimately, the questions posed, and the discussion between John and I during our analysis of Mama Jo’s and other prevalent cases provoked an hour-long, fruitful conversation. COVID-19 presents a novel and ongoing condition that has affected millions of businesses and has now infiltrated the judicial system. As both sides of these disputes have completely plausible arguments for or against insurance coverage, it is left to the courts to continue issuing these opinions to allow us to further understand the virus and its implications on our world.