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Missouri businesses clear major hurdle in suit to recover pandemic losses

Judge Stephen Bough

Judge Stephen Bough

A group of Missouri businesses have cleared a significant early hurdle in a suit that alleges their insurer declined to cover business-interruption losses from the COVID-19 pandemic.

In an Aug. 12 ruling, U.S. District Judge Stephen R. Bough of the Western District of Missouri denied The Cincinnati Insurance Company’s motion to dismiss, finding that a group of Springfield hair salons and Kansas City-area restaurants adequately stated their claim that they suffered a direct physical loss as a result of the pandemic.

Brandon Boulware of Boulware Law in Kansas City, an attorney for the plaintiffs, said the decision “is a significant win for insureds and important first step in forcing Cincinnati Insurance to pay for the losses covered in the insurance policy.”

Beyond the significance of obtaining a ruling in his clients’ favor, Boulware said the case is the first among all pending business-interruption lawsuits nationally against Cincinnati Insurance to advance to the motion-to-dismiss phase and clear that hurdle.

“It’s not only significant here in Missouri, it’s significant across the country,” he said.

Kelvin Fischer of Wallace Saunders in Overland Park, Kansas is representing the insurer. He did not respond to a request for comment.

The plaintiffs are 417 Studio Inc., which operates hair salons in Springfield, and the owners of Kansas City-area restaurants Grand Street Café, Trezo Mare and V’s Restaurant. They also are represented by attorneys from Wagstaff & Cartmell and Votava Nantz & Johnson.

In their suit filed in April, they allege that the presence of the novel coronavirus and local closure orders caused a direct physical loss or direct physical damage to their premises.

Similar litigation is pending in the District of Kansas against the same insurers. That case, brought by Promotional Headwear International, is being handled by a different group of plaintiffs’ attorneys and remains in the briefing stage for the insurer’s motion to dismiss.

In the case before Bough, the parties each purchased “all-risk” property insurance policies from Cincinnati Insurance. The policies provide that the insurer would pay for “direct ‘loss’ unless the ‘loss’ is excluded or limited” by the policies. The policies did not contain a virus exclusion.

The plaintiffs sought coverage for their losses, alleging that it’s likely that customers, employees and other visitors to their properties were infected with COVID-19 and then infected the insured properties with the virus.

They alleged that the virus is a “physical substance” and that its presence rendered their property unsafe and unusable, forcing them to suspend or reduce business.

In response, the insurer argued the policies cover only income losses tied to physical damage to property, not economic loss caused by efforts to protect the public from disease.

Bough ruled that the plaintiffs have adequately stated a claim for direct physical loss. He said the policies at issue “provide coverage for ‘accidental physical loss or accidental physical damage.’”

“Defendant conflates ‘loss’ and ‘damage’ in support of its argument that the Policies require a tangible, physical alteration,” he wrote. “However, the Court must give meaning to both terms.”

Bough addressed a recent case from the Southern District of New York, Social Life Magazine Inc. v. Sentinel Insurance Co., which the insurer cited in its reply brief. He said the insurer argued that the case “famously states that the virus damages lungs, not printing presses.”

“But the present case is not about whether COVID-19 damages lungs, and the presence of COVID-19 on premises, as is alleged here, is not a benign condition,” he wrote. “Regardless of the allegations in Social Life or other cases, plaintiffs here have plausibly alleged that COVID-19 particles attached to and damaged their property, which made their premises unsafe and unusable. This is enough to survive a motion to dismiss.”

The case is Studio 417 Inc. et al. v. The Cincinnati Insurance Company, 6:20-cv-03127.