State Farm Needn't Cover Chiropractor's COVID-19 Losses

By Daphne Zhang
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Law360 (September 3, 2020, 10:17 PM EDT) -- A Michigan federal judge freed State Farm Mutual Automobile Insurance Co. from having to cover a chiropractic office's losses from state-ordered closures due to COVID-19, saying Thursday that the business failed to allege physical loss and that the virus exclusion bars coverage.

U.S. District Judge Thomas L. Ludington tossed the operation's proposed class action seeking business interruption coverage, saying that the business' entire case relies on the definition of "direct physical loss" but that it didn't demonstrate any "tangible damage to covered property" as required by the policy.

Turek Enterprises Inc., doing business as Alcona Chiropractic in Harrisville, Michigan, sued State Farm in June, alleging the insurer wrongfully applied a virus exclusion to deny coverage. Turek argued the exclusion was unrelated to its loss, which was solely caused by government closure orders, and that no COVID-19 was present on its property.

In Thursday's order, Judge Ludington said that even if the business said that state-mandated closures, not the novel coronavirus, was the only cause of its loss, the order was issued in response to curb the spread of the virus, so its losses are barred by the policy's virus exclusion.

"Plaintiff's position essentially disregards the anti-concurrent causation clause, which extends the virus exclusion to all losses where a virus is part of the causal chain," the judge said.

The judge rebuffed Turek's position that the exclusion only applies to decontamination costs claims and that insurers misrepresented it to regulators in 2006. Turek has argued that the exclusion was created to add to standard property and casualty policies alongside pollution and asbestos contamination exclusions.

"By its terms, the policy does not limit the virus exclusion to contamination, and plaintiff has failed to show that the virus exclusion is ambiguous," Judge Ludington said. "Even if defendants misrepresented the purpose and extent of the virus exclusion in 2006, the plain, unambiguous meaning of the virus exclusion today negates coverage."

The judge also struck back at the chiropractor's argument that it experienced "tangible damage" because it suffered "tangible deterioration" when its business was suspended by government orders, saying that Turek's property suffered "passive depreciation" instead of direct physical loss.

"The plain meaning of direct physical loss to covered property requires that there be a loss to covered property, and not just any loss," Judge Ludington said, pointing out that the business has insisted that the COVID-19 virus never attached to and damaged its property.

The chiropractic business has argued that its property, including chiropractic equipment, medication, supplements with expiration dates and other depreciating assets, has suffered "loss of use" and "loss of value." And such losses are "direct physical damage" because its property cannot be used for business activity.

"Rather than the loss of use being the 'direct physical loss,' the 'direct physical loss' is now the passive depreciation caused by the loss of use," Judge Ludington said. "Plaintiff offers no authority to support the theory that passive depreciation counts as a 'direct physical loss to covered Property,' and such a conclusory allegation fails to state a claim to relief that is plausible on its face."

Judge Ludington also denied Turek's bid to amend the complaint because "granting such leave would be futile."

The business suspended operations for 2½ months after state-mandated closures issued on March 24. It was seeking to represent a class of all Michigan business owners who have been denied coverage by State Farm, according to filings.

Representatives for the parties did not immediately respond to requests for comment.

Turek is represented by Ken Neuman, Jennifer Grieco and Steven McKenney of Altior Law PC and Andrew Kochanowski, Jason Thompson and Rob Sickels of Sommers Schwartz PC.

State Farm is represented by Matthew P. Allen, Paul D. Hudson, and Thomas W. Cranmer of Miller Canfield Paddock and Stone PLC; Douglas W. Dunham and Bert L. Wolff of Dechert LLP.

The case is Turek Enterprises Inc. dba Alcona Chiropractic v. State Farm Mutual Automobile Insurance Co. et al., case number 1:20-cv-11655, in the U.S. District Court for the Eastern District of Michigan.

--Editing by Brian Baresch.

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