Insurer wins Covid BI ruling in Washington as insured wins Californian case

Washington became the fifth US state supreme court to rule in insurers’ favour over Covid-related business interruption (BI) litigation, when it unanimously ruled against a dental practice.

But a California appeals court has overturned a lower court ruling and held that a nail salon was entitled to BI coverage under its Lloyd’s policy.

As first reported by our sister publication Business Insurance, the Washington case, which affirmed a lower court ruling, was filed by a dental practice with offices in Oak Harbor and Anacortes, Washington, against Mutual of Enumclaw Insurance.

As with comparable rulings, the supreme court held that there was no direct physical loss, which was required under the coverage. “It is unreasonable to read ‘direct physical loss of …property’ in a property insurance policy to include constructive loss of intended use of property,” the ruling said.

The dental practice “was still able to physically use the property at issue”, it continued.

The ruling also held that coverage was precluded by the coverage’s virus exclusion.

The decision follows similar rulings by state supreme courts in South Carolina, Wisconsin, Iowa and Massachusetts.

Plaintiff attorney Mark A Wilner, a partner with Gordon Tilden Thomas & Cordell, said in a statement: “We were obviously disappointed in seeing the ruling. But we appreciate that our state high court has been able to chime in quickly and decisively on this important question of state insurance law – especially when so many federal courts were issuing decisions guessing at what the state supreme court would do.

“Now they don’t have to. Also, it’s important to remember what the court decided and what it didn’t decide. The court’s decision was narrowly tailored to the facts before it. The decision wouldn’t apply to cases with materially different facts, such as virus-on-the-premises cases, many of which do not even involve virus exclusions,” he added.

The insurers’ attorneys did not respond to a request for comment.

Meanwhile, the ruling by the Los Angeles-based state appeals court in Butter Nails and Waxing Inc v Underwriters at Lloyd’s focused on the nail salon’s property policy. It cited a provision in the coverage that insured against BI due to “civil authority rction” requiring evacuation of an insured property.

The ruling also held that the policyholder was entitled to coverage under its policy’s mould exclusion, which it said does not clearly “exclude losses stemming from public health orders addressing a viral pandemic, particularly where the insured does not allege the virus was present on the business premises”.

Butter Nails attorney Robert S Gerstein said the evacuation coverage in the nail salon’s policy is unusual. “I don’t think there’s been another case around the country involving this evacuation language,” he said.

Lloyd’s attorneys did not respond to a request for comment.

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