Rare COVID BI win for policyholder rescinded in federal court

A relatively rare victory in policyholders’ efforts to obtain COVID-19 business interruption coverage was rescinded this week when a federal district court withdrew its previous favorable ruling in light of an appellate court decision.

In January, the U.S. District Court in Cleveland had refused to dismiss a COVID-19 business interruption lawsuit filed by Twinsburg, Ohio-based Henderson Road Systems Inc. against Zurich American Insurance Co., holding in its ruling in Henderson Road Restaurant Systems Inc. v. Zurich American Insurance Co. that the insurer’s policy language was ambiguous and a “microorganism” exclusion is applicable.

However, on Sept. 22, a unanimous three-judge appeals court panel affirmed a lower court ruling by the U.S. District Court in Cleveland in Santo’s Italian Café LLC v. Acuity Insurance Co. and ruled that Santosuossos, a Medina, Ohio, restaurant, had not established there was a direct physical loss or damage under the terms of the policy issued by Sheboygan, Wisconsin-based Acuity.

On Sept. 29, the 6th Circuit vacated the court’s order granting summary judgment to Henderson and remanded the case back to the district court for further proceedings consistent with its Santo’s ruling, according to Tuesday’s ruling by the Cleveland district court.

In its latest ruling, citing the Santo’s ruling, the district court reversed its earlier ruling and granted summary judgment to Zurich. Although plaintiffs in the case submitted a brief contending the Santo’s decision was distinguishable from its case, the district court disagreed.

“Overall, the Court discerns no basis upon which Santo’s is distinguishable from the undisputed facts resented here,” the ruling said. 

The 6th Circuit “has made clear that mere loss of use is insufficient to trigger insurance coverage for ‘direct physical loss’ of ‘property’ under the ordinary meaning of these words,” it said, in granting Zurich’s motions for summary judgment.

Attorneys in the case had no comment or did not respond to a request for comment.