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An Ohio state court has refused to dismiss COVID-19-related litigation filed against an insurer by a leasing company that lost rental income, stating the insurer’s policy language is ambiguous.
North Canton, Ohio-based McKinley Development Leasing Co. Ltd., a real estate development and leasing company that owns several commercial properties in North Canton, filed suit against Westfield Center, Ohio-based Westfield Insurance Co. for breach of contract and bad faith in May, according to Tuesday’s ruling by the Stark County Court in Canton, Ohio in McKinley Development Leasing co. Ltd., et al v. Westfield Insurance Co.
McKinley charged the insurer with breach of contract and bad faith after it refused to compensate it for the business income losses it sustained when the governor ordered businesses to curtail their business activity or completely shut down because of COVID-19 and its tenants were unable to their rent.
Westfield’s policy provides for the loss of business income caused by “direct physical loss of damage to property at premises,” the ruling said.
“The bottom line is simply this. Both sides provided reasonable interpretations of the policy language. Westfield argues that the physical loss means some type of tangible, physical damage must alter the structure integrity.
“McKinley counters that it has plead sufficient facts that would entitle it to recovery and that the terms drafted by Westfield in their policy are ambiguous and susceptible to more than one interpretation.
“There is no question that the Court has been bombarded with cases falling on both sides of the aisle. However, Westfield has the benefit of writing the policy with the ability to consider consequences in this ever-changing world.
“They had an obligation to use terminology easily understood by laypersons…That is not the case here. The Court can only surmise that with these different opinions that the policy is ambiguous.”
The court held that the policy’s virus exclusion is not applicable. “In the court’s eyes, it appears that Westfield is viewing both the virus and the pandemic in tandem, whereas McKinley argues that their losses are the result of the pandemic that are distinct from those caused by the virus itself,” the ruling said.
“It is obvious to this Court that a virus is not the same as a pandemic. The insurer, being the one who selects the language in the contract, must be specific in its use; an exclusion from liability must be clear and exact in order to be given effect,” it said.
“More important, this court questions if Westfield intended for a ‘pandemic’ to be excluded from coverage, why didn’t it explicitly exclude it? After all, Westfield had control and wrote the policy.
“At this early-stage, McKinley’s argument is more convincing because the language is reasonably susceptible of more than one interpretation,” said the court, in refusing to dismiss the case.
McKinley general counsel Thomas Winkhart said in a statement that the company “has been committed to this area for decades. It is crucial to McKinley that its insurance contract with Westfield is honored, so that McKinley can continue to support this region and the multitude of small businesses who are its tenants.”
A spokeswoman for Westfield said the insurer’s policy is not to comment on pending litigation.
Last month, another Ohio state court judge refused to dismiss a COVID-19-related business interruption lawsuit filed by a North Canton restaurant against its insurer, citing the restaurant’s civil authority coverage and a policy endorsement for food-borne illness.
More insurance and risk management news on the coronavirus crisis here.
Commercial property insurers will likely pay property damage losses resulting from the civil unrest in cities across the United States, but business interruption loss calculations will be complicated by ongoing issues with coronavirus lockdowns.