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Insurer wins COVID-19 ruling as judge parses policy wordings

chiropractor table

A Michigan chiropractic practice is not covered for COVID-19 losses under the firm’s policy with State Farm, a federal judge ruled Thursday in a decision that centered on the words “to,” “of” and “or” in commercial insurance policies.

The policy only covers lost income in the event of physical damage to a property, and even if that were not the case, the virus exclusion in the policy would bar pandemic-related coverage, the judge ruled.

The ruling adds to the growing list of insurer wins on the issue of business interruption coverage for coronavirus-related losses.

In the case Turek Enterprises Inc., d/b/a Alcona Chiropractic v. State Farm Mutual Automobile Insurance Co., State Farm Fire and Casualty Co., a Harrisville, Michigan-based chiropractic practice sought coverage for losses it incurred due to government-mandated closures of nonessential businesses in March, following the spread of COVID-19 in the United States.

The suit filed in June in U.S. District Court for the Eastern District of Michigan Northern Division sought class-action status. State Farm filed a motion to dismiss the lawsuit.

In ruling for State Farm, Judge Thomas L. Ludington noted that the policy wording required direct physical loss to a covered property for business interruption coverage to be triggered.

“Plaintiff suggests that ‘physical loss to Covered Property’ includes the inability to use Covered Property. … This interpretation seems consistent with one definition of ‘loss’ but ultimately renders the word ‘to’ meaningless. ‘To’ is used here as a preposition indicating contact between two nouns, ‘direct physical loss’ and ‘Covered Property’,” the ruling states.

The policyholder’s argument might be plausible if the policy offered coverage for “direct physical loss of covered property,” according to the ruling.

State Farm’s interpretation is also consistent with other court rulings on the issue, in particular a Texas federal court’s decision in August against a group of barbershops seeking business interruption coverage, Judge Ludington said.

A separate federal court ruling in favor of a group of hair salons in Missouri that sued their insurer did not help the chiropractor’s case, the judge said.

The policy at issue in the Missouri case “covered losses arising from ‘accidental physical loss or accidental physical damage to property,” and the policyholders in that case alleged that the virus was present on their premises, the ruling states.

By contrast, in the Michigan case “Plaintiff asserts that COVID-19 never entered its premises,” the ruling states.

Even if the policy wording on direct physical loss did allow for business interruption coverage, the virus exclusion in the policy would still bar coverage, the judge ruled.

“The plain, unambiguous meaning of the Virus Exclusion today negates coverage,” he said in the ruling.

A lawyer representing the policyholder did not immediately respond to a request for comment.

The ruling is one of several recent COVID-19 decisions that have favored insurers. On Wednesday, a federal judge in Florida ruled that the virus exclusion in a dentist’s commercial insurance policy barred coverage of losses the dentist suffered during the coronavirus lockdown.

More insurance and risk management news on the coronavirus crisis here