US mall owner wins Covid BI case but insureds lose again elsewhere

A federal district court has refused to dismiss Covid-19-related business interruption (BI) coverage litigation filed by a shopping mall owner against an AIG unit, concluding that its policy’s pollution and contamination exclusion is ambiguous.

Meanwhile, the District of Columbia Court of Appeals became the latest, and last, federal appeals court to rule against a group of restaurants and bars trying to recover pandemic related BI losses.

C.J. Segerstrom & Sons, which owns and operates California mall South Coast Plaza, filed a suit against AIG unit Lexington Insurance and Starr Surplus Lines Insurance, according to Tuesday’s ruling by the US District Court in Los Angles in C.J. Segerstrom and Sons v. Lexington Insurance Co. et al.

Segerstrom’s policies provided up to $5m in protection under a “special time element-cancellation coverage” provision for losses related to “interference with the business of any insured location” as the result of an occurrence, including “contagious or infectious disease”.

The Lexington policy also included a pollution and contamination exclusion, which Lexington argued precluded coverage but Segerstrom contended wasn’t applicable to its claim.

The court ruled that both interpretations of the policy are reasonable, “thereby rendering the provision ambiguous and requiring that it be construed in favour of Segerstrom and against Lexington”, the court said.

Attorneys in the case did not respond to requests for comment.

In related news, US restaurants and bars filed suit against the Erie Insurance Exchange seeking coverage under their Erie Ultrapack Plus Policy insurance package, according to the ruling in Rose’s 1, LLC et al., v. Erie Insurance Exchange.

A three-judge panel affirmed a ruling by the Washington DC Superior Court in denying the plaintiffs coverage. “Like other courts, we are tasked with determining whether appellants have alleged a ‘direct physical loss of or damage to Covered Property’. We determine they have not,” the ruling says.

“Taking the policy at face value… we conclude that the loss of covered property must be tangible and material. It must be perceptible, a physical alteration or change,” it adds, citing earlier rulings.

“Appellants have not alleged a tangible change or alteration to their properties, and thus, they have not shown ‘physical loss of or damage to covered property’ as required by the policy,” it says in affirming the lower court.

The previous most-recent federal appeals court to rule against policyholders was the Third US Circuit Court of Appeals in Philadelphia this January.

The Connecticut high court joined state supreme courts in Delaware, Iowa, Maryland, Massachusetts, Ohio, Oklahoma, South Carolina, Washington and Wisconsin by ruling in favour of insurers this January in comparable cases, with only Vermont’s high court ruling in policyholder’s favour to date.

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