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Beauty salon’s COVID-19 BI case may proceed

beauty salon

A federal district court has refused to dismiss a COVID-19 business interruption lawsuit filed by a beauty salon against a Farmers Insurance Group Inc. unit, stating the business may have sustained a direct physical loss that is covered under the terms of its policy.

Tappan, New York-based Nora’s Salon Inc. had filed a putative class action against Farmers Insurance Group unit Truck Insurance Exchange in September, according to Thursday’s ruling by the U.S. District Court in Riverside, California, in Kingray Inc. v. Farmers Group Inc., et al.

The lawsuit joined one filed in May by Kingray, a  LaQuinta, California-based sports bar and grill, which was dismissed by the court on Thursday in the same ruling.

The central clause of Nora’s policy, which does not include a virus exclusion, was “direct physical loss of or damage to property,” the ruling said. “At various points during the pandemic, Nora’s was forced to shutter, rendering its property unusable for its only purpose — the operation of a business,” the ruling said.  “If Plaintiff was not allowed to operate or invite others onto its property, it was dispossessed in some way, the ruling said. “Dispossession is a form of loss.”

“The next question is whether that loss — dispossession — constitutes a ‘direct physical loss,” the ruling said. “Plaintiff compellingly contends that under both California and New York law, physical alteration to property is not necessary to constitute a physical loss,” it said.

It gave as an example a California case in which an insured home was pushed by a landslide off a cliff but was undamaged.  “The California Court of Appeals found that ‘common sense’ required coverage because the house had been rendered unusable to its owners, even though its paint was intact and its walls still adhered to one another,” the ruling said.

“If the contract between Nora’s and Defendant specified only that ‘direct physical damage’ to property warranted coverage, it would be without a claim,” is said.

“However, it is plausible that ‘direct physical loss of’ property includes physical dispossession because of dangerous conditions (a virus in the air) or a civil authority order requiring Nora’s to close,” it said.

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

Last month a federal district court refused to dismiss COVID-19 business interruption litigation filed by an Ann Arbor, Michigan, hair salon, despite its policy’s virus exclusion, because of its communicable disease coverage.


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