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Law360 (July 19, 2021, 9:31 p.m. EDT) – An Illinois federal judge on Monday rejected Snap Fitness’s offer for business disruption coverage related to COVID-19, saying the insurer did not not broken his contract with the fitness franchise because the health club did not suffer any physical loss or direct damage from the coronavirus.
United States District Judge Mary M. Rowland ruled in her 14-page opinion that shutting down Snap Fitness following state-imposed closure orders does not give the health club and fitness the right to insurance coverage from Mt. Hawley Insurance Company.
The judge pointed out that several courts nationwide have ruled “that state-ordered closures do not form a basis for a claim for loss of business income.”
“[P]issuing recovery on the basis of state closure orders would effectively remove the word “physical” from the contract, ”the judge wrote in her opinion. “And while the plaintiffs have physically altered their property in response to the orders – the installation of plexiglass among other changes – such measures are not considered a physical loss.”
The ruling marks the end of Snap Fitness’s COVID-19 insurance lawsuit, launched last year after its insurer refused to cover the franchise’s loss of business income claim, insisting that a such loss was not covered in his policy.
Snap Fitness closed its gyms in response to government orders trying to curb the spread of the virus, and argued it had suffered a loss due to COVID-19 and related shutdown orders.
The fitness franchise also said it lost revenue due to the new virus “infesting” their property.
The insurer decided to dismiss the lawsuit, arguing that the fitness deductible was not entitled to business interruption coverage because it had not suffered any physical or direct loss.
Mount. Hawley Insurance Company further argued that fitness franchise COVID-19 contamination claims are not ripe, given that Snap Fitness did not report any possible infestations when it first submitted its insurance claim.
And on Monday, Judge Rowland ruled in favor of the insurer and quashed the lawsuit.
To support his reasoning, Rowland JA referred extensively to the recent Eighth Circuit ruling in July in Oral Surgeons PC v. The Cincinnati Insurance Co. In this judgment, the panel found that the suspension by oral surgeons of elective procedures following the pandemic has not caused any direct physical loss or damage.
The panel also said that the Cincinnati policy does not provide coverage for the partial loss of use of its offices by oral surgeons without any loss or physical damage.
Applying the Eighth Circuit decision to the lawsuit at issue, Rowland J.A. followed the logic of the Appeal Board as well as the wording of the policy in determining that “the closure is not covered by the income provisions of business and additional policy expenses “.
Regarding his infestation allegations, Justice Rowland determined that Snap Fitness’s argument ultimately failed to make a valid claim.
“Even though COVID-19 could lead to contamination, the plaintiffs did not sufficiently plead its presence on their property,” the judge wrote in her opinion.
Whether businesses are suffering physical damage from the pandemic worthy of loss coverage is an issue that has fueled litigation over the past year as business owners clash with insurers in front of claims. courts for pandemic-related claims.
Two professional groups of national insurance companies in May gave their support behind Cincinnati Insurance Co. in its Seventh Circuit coverage fight over COVID-19 losses from a steakhouse and brewery operator, arguing that all-risk policies do not cover outright economic losses.
The American Property Casualty Insurance Association and the National Association of Mutual Insurance Companies have said that commercial property insurance policies only pay for losses from natural disasters, like fires and hurricanes, and don’t were never intended to cover “economic losses unrelated to physical loss or damage”.
Other insurers, such as Aspen Specialty Insurance Co., have argued that property insurance policies are not designed to extend to cover against pandemics.
Counsel for the parties did not immediately respond to Law360’s requests for comment on Monday.
Snap Fitness is represented by Jeffrey P Goodman of Saltz Mongeluzzi & Bendesky PC
The insurer is represented by William M. Daley of Robinson & Cole LLP.
The case is Byberry Services and Solutions LLC et al. v. Mountain. Hawley Insurance Company, file number 1: 20-cv-03379, in the United States District Court for the Northern District of Illinois.
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