Last week there were major developments in the Ohio Covid-19 legal landscape.
The same day that United States District Judge Dan Aaron Polster of the Northern District of Ohio, Eastern Division, issued a decision that the language of an insurer’s business income coverage was susceptible to the interpretation that an insured premises sustained “physical loss or damage” when state governments ordered that the premises could no longer be used for their intended purpose as dine-in restaurants, United States District Judge Benita Y. Pearson, also of the Northern District of Ohio, Eastern Division, certified the following question to the Supreme Court of Ohio:
Does the general presence in the community, or on surfaces at a premises, of the novel coronavirus known as SARS-CoV-2, constitute direct physical loss or damage to property; or does the presence on a premises of a person infected with COVID-19 constitute direct physical loss or damage to property at that premises?
Judge Polster recognized that his January 19, 2021 Opinion and Order in Henderson Road Restaurant Systems, Inc. v. Zurich America Ins. Co., N.D. Ohio No. 1:20 CV 1239, 2021 WL 168422 (Jan. 19, 2021), was not final or appealable because damages were not yet determined, but he certified his Opinion and Order for interlocutory appeal to the United States Court of Appeals for the Sixth Circuit because his Opinion and Order involved a question of law that will control the outcome of the restaurants owner’s breach of contract claim, and an interlocutory appeal would enable the parties to appeal the legal issue before spending additional time and money on the issue of damages.
In reaching his decision, Judge Polster reasoned that “no one could have anticipated that state governments would issue orders shutting down or greatly restricting Plaintiffs’ restaurants”; that this was an “occurrence of chance.” Judge Polster held that the insureds were entitled to a summary judgment on the issue of coverage because the subject insurance policy was susceptible of more than one interpretation and the insureds showed that they incurred loss of business income due to the necessary suspension of their operations during the period of restoration “caused by direct physical loss of or damage to property” at the insured premises.
Judge Polster also addressed a “Loss of Market or Delay” exclusion and a “Microorganisms” exclusion. The “Loss of Market or Delay” exclusion stated:
We will not pay for loss or damage caused by or resulting from loss of market, loss of use, or delay. This exclusion applies even if one of these excluded causes of loss was caused by or resulted from a “mistake” or “malfunction.”
The “Microorganisms” exclusion read in part:
We will not pay for loss or damage consisting of, directly or indirectly caused by, contributed to, or aggravated by the presence, growth, proliferation, spread, or any activity of “microorganisms”, unless resulting from fire or lightning. Such loss or damage is excluded regardless or any other cause or event, including a “mistake” or “malfunction,” or weather condition, that contributes concurrently or in any sequence to the loss, even if such other cause or event would otherwise be covered.
Judge Polster concluded that neither of the exclusions applied. He held that the “Microorganism” exclusion did “not clearly exclude loss of property caused by a government closure” and the “Loss of Market or Delay” exclusion did not apply because “the Loss of Use exclusion would vitiate the Loss of Business Income coverage” and “Zurich did not even argue that this exclusion applied until after Plaintiffs argued that it didn’t.”
Judge Polster did grant Zurich summary judgment as to its insured’s bad faith claim, and noted that other courts have agreed with the arguments the insurer asserted there, and “given the ‘growing consensus of courts’ that have rejected COVID-19 business interruption claims, it cannot be said that Zurich did not have a reasonable justification for denying coverage.”
The United States Court of Appeals for the Sixth Circuit will most likely stay any appeal of Judge Polster’s decision pending a determination of the question Judge Pearson certified in Neuro-Communication Services, Inc. v. Cincinnati Ins. Co., N.D. Ohio No. 4:20-CV-1275 (Jan. 19, 2021), to the Supreme Court of Ohio.
The Supreme Court is not required to answer the specific question Judge Pearson certified to the Court, but one would expect the Court to address whether government orders related to, or the presence of, the COVID-19 virus constitute direct physical loss or damage to insured property. As Judge Pearson observed, the question certified is an important question of state law implicating many cases.
Dozens, if not hundreds of cases seeking coverage for losses related to the pandemic under policies similar or identical to that at issue in this case have been filed in both federal and state courts in Ohio. These cases have been filed against the Defendants in this case and against other insurers who offer similar products. As these cases wind through the various court systems, differing interpretations of Ohio contract law by different courts threaten to undermine the uniform application of that law to similarly situated litigants.
Rule 9.05(A)(1) of the Supreme Court of Ohio Practice Rules provides, “Within twenty days after a certification order is filed with the Supreme Court, each party shall file a memorandum, not to exceed fifteen pages in length, addressing all questions of law certified to the Supreme Court.” Section (A)(2) also permits an amicus curiae to file a memorandum supporting either party. Section (B) states that the Supreme Court will review the memoranda, and issue an order identifying the question or questions the Supreme Court will answer or decline.
Rule 9.07 of the Supreme Court of Ohio Practice Rules provides that if the Supreme Court decides to answer any of the questions certified to it, the parties shall brief the merits of the issue certified, and after the case is brief, oral argument will be scheduled.
We will keep you advised as this developing matter proceeds.