A federal district court in Texas on Wednesday refused to dismiss a COVID-19 business interruption coverage lawsuit filed by the Cinemark movie chain, stating the company’s claim that the virus had damaged property was covered under its policy.

Plano, Texas-based Cinemark Holdings Inc., which is the third-largest movie theater circuit in the United States, filed suit against an FM Global unit after the insurer did not respond to its coverage claim for business income losses incurred because of its theaters’ shutdown, according to the ruling by the U.S. District Court in Sherman, Texas, in Cinemark Holdings Inc. v. Factory Mutual Insurance Co.

The policy included “communicable disease response” and “interruption by communicable disease” coverages, the ruling said. 

The ruling said more than 1,700 Cinemark employees tested positive for, were exposed to, or displayed COVID-19 symptoms, and most were on Cinemark property just before they tested positive.

Factory Mutual argued Cinemark had not alleged physical loss or damage, and that its policy’s contamination exclusion barred claims.  It cited the court’s dismissal last month of another COVID-19 business interruption case, Selery Fulfillment Inc. v. Colony Insurance Co., which had been filed by a Carrollton, Texas-based company that provides services for ecommerce businesses against an Argo Group unit.

The two cases are different, the ruling said. The Selery case alleged COVID-19 and the resulting government orders caused a direct physical loss or damage to its property, the ruling said.

“The court granted the motion to dismiss because mandatory authority suggests that ‘physical loss’ requires a physical alteration of the property…. Selery never alleged that COVID-19 entered the property, only that the pandemic prevented Selery from fully utilizing it,” it said.

Cinemark “alleges a different harm and is governed by different contract terms,” the ruling said. “Unlike Selery, Cinemark alleges that COVID-19 was actually present and actually damaged the property by changing the content of the air,” it said.

Its policy “is much broader than the one in Selery and expressly covers loss and damage caused by ‘communicable disease,’” which both parties agree encompasses COVID-19, the ruling said, in refusing to dismiss the case.

Cinemark attorney Michael S. Levine, a partner with Hunton Andrews Kurth LLP in Washington, said, “It’s refreshing and encouraging that the court looked at the specific allegations and recognized the material differences in the lawsuit that we filed and that these differences are material, and that they matter.”

The court looked at the details and “got the right result,” he said.

FM Global said in a statement that it “values the long-term relationships we have with our policyholders and we are proud to be leading the industry for claims service. It is unfortunate when legal matters arise because we strongly believe our insurance policies are clear on the coverage provided.”

More insurance and risk management news on the coronavirus crisis here.