Berkshire Hathaway Fights Bid To Invalidate Virus Exclusion

By Hailey Konnath
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Law360 (July 13, 2020, 11:14 PM EDT) -- Berkshire Hathaway and one of its units on Monday urged a Pennsylvania federal court to toss a restaurant's suit seeking insurance coverage for losses caused by the COVID-19 pandemic, arguing that a virus exclusion "plainly applies" to the restaurant's claims.

1 S.A.N.T. Inc., doing business as the Town & Country Bar and Grill in New Castle, hit Berkshire Hathaway and National Fire & Marine Insurance Co. with the proposed class action last month. The restaurant said it was owed coverage because exclusions in policies for losses due to contamination by viruses and bacteria were invalid because they had been misrepresented to state regulators as something that wouldn't significantly narrow coverage.

But National Fire argued that it had properly denied Town & Country's claim because the restaurant didn't sustain "direct physical loss of or damage to covered property" necessary to trigger coverage under the policy. The alleged loss or damage is also excluded under the policy because it stems from a virus, and the closure orders issued by state and local governments didn't prohibit access to the property, a requirement for civil authority coverage, the insurer said.

"The decision of this court will be important and widely reported," National Fire added. "This could be the first decision on enforcement of the virus exclusion for COVID-19 in federal court."

In a separate motion to dismiss, Berkshire Hathaway said there's nothing in Town & Country's complaint that establishes personal jurisdiction over the Omaha, Nebraska-based company in Pennsylvania. And the restaurant hasn't stated a claim against Berkshire Hathaway upon which the court can grant relief, the company said.

"The complaint contains nothing indicating why Berkshire Hathaway is a defendant other than its subsidiary, National Fire, having issued the insurance policy to plaintiff," the company said.

Hundreds of businesses around the country have asserted that their insurance policies cover losses from the pandemic, but many insurers are pointing to the virus exclusions as a reason for denial. Town & Country is looking to represent a national class of National Fire customers that have been denied coverage of their coronavirus losses, seeking damages equal to their lost business or the limits of their policies.

According to the June 11 complaint, Town & Country was one of many "nonessential" businesses forced to close their physical locations in March due to government orders intended to limit person-to-person transmission of COVID-19. Those government orders caused a physical loss to the business and should've been covered, they said.

In 2006, insurance trade groups Insurance Services Office Inc. and the American Association of Insurance Services represented hundreds of insurers, including National Fire, in front of different states' regulators seeking approval of putting virus and bacteria exclusions into their policies, per the complaint.

The insurers had specifically cited the possibility of a pandemic as something they hadn't intended their policies to cover, the restaurant said. But there was precedent at the time that contamination by viruses or bacteria were "physical losses" that should be covered, Town & Country argued.

"In securing approval for the adoption of the virus exclusion by misrepresenting to the state regulators that the virus exclusion would not change the scope of coverage, the insurance industry effectively narrowed the scope of the insuring agreement without a commensurate reduction in premiums charged," the complaint said. "Under the doctrine of regulatory estoppel, the court should not permit the insurance industry to benefit from this type of duplicitous conduct before the state regulators."

National Fire said Monday that the restaurant's take is "futile on its face." Importantly, National Fire has never changed its position on the virus exclusion, it said.

"Indeed, National Fire wholeheartedly agrees with the 2006 statements quoted about the virus exclusion in plaintiff's complaint," the insurer said. "Anticipation of a possible pandemic was exactly the point of the virus exclusion, as plaintiff's own allegations make clear."

It added, "There can be no issue of estoppel."

Counsel for the parties didn't immediately return requests for comment late Monday.

Town & Country is represented by Gary F. Lynch, R. Bruce Carlson and Kelly K. Iverson of Carlson Lynch LLP.

Berkshire Hathaway and National Fire are represented by Robert L. Byer, Julie S. Greenberg and Damon N. Vocke of Duane Morris LLP.

The case is 1 S.A.N.T. Inc. v. Berkshire Hathaway et al., case number 2:20-cv-00862, in the U.S. District Court for the Western District of Pennsylvania.

--Additional reporting by Matthew Santoni. Editing by Jay Jackson Jr.

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