Zurich Wants America's Kids' COVID-19 Coverage Suit Tossed

By Mike Curley
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Law360 (September 22, 2020, 7:05 PM EDT) -- Zurich American Insurance Co. is asking an Illinois federal court to throw out claims by clothing retailer America's Kids LLC that the insurer wrongfully denied coverage of losses stemming from the COVID-19 pandemic, saying the retailer can't claim the virus has caused "physical loss or damage."

In a motion filed Monday, Zurich said that under New York law, which governs the case, "physical loss or damage" is limited to physical damage to property, and while COVID-19 may damage the lungs, it doesn't affect building structures.

The insurer pointed to several recent cases in which California and Michigan judges have thrown out similar cases, ruling that business interruptions and civil authority shutdowns to stem the virus do not trigger coverage.

"Across the country, courts have been reaching the same result nearly uniformly and dismissing claims, like that of America's Kids, that attempt to stretch property insurance policies to cover economic losses unhinged from any property loss or damage," the insurer argued.

As the virus does not change structures and can be wiped away or disinfected, it cannot cause the kind of physical loss contemplated by the policy, Zurich argued, saying the civil authority clause similarly requires that shutdown orders be in response to physical loss, nixing coverage under that clause, as well.

America's Kids filed suit in June, alleging in the proposed class action that, like numerous other businesses in the last several months, it was wrongfully denied coverage for its losses incurred as a result of shutting its doors to stem the spread of COVID-19, which as of Tuesday has killed more than 200,000 people in the U.S.

In Monday's motion, Zurich also argued the microorganism and virus exclusion in America's Kids' policy bars coverage for any losses resulting from a virus or microorganism, and for that reason alone the policy offers no coverage. While America's Kids pointed to another clause that it argued allows coverage for microorganisms, Zurich argued that clause only applies when the microorganisms resulted from another covered cause.

The insurer also took aim at America's Kids' bad faith claims, saying Zurich's denial of coverage wasn't deceptive or malicious, but a reasonable and correct interpretation of the policy. In addition, Zurich argued, the claim is merely a duplication of the breach of contract claim and fails to allege any consequential damages outside the disputed insurance claim.

The retailer's deceptive practices claims also fail, Zurich argued, as New York's law does not have a private right of action, and is intended to deal with consumer-oriented practices, not insurance policies which are considered contract disputes.

The insurer further argued that its practice of denying coverage for COVID-19 business losses isn't deceptive, because the policies do not afford coverage in the first place.

Zurich told the court that no amount of additional pleading could save America's Kids' claims, and so the complaint should be dismissed with prejudice.

Representatives for America's Kids and Zurich American could not immediately be reached for comment Tuesday.

America's Kids is represented by Jay Edelson, Benjamin H. Richman, Theo Benjamin and Lily Hough of Edelson PC.

Zurich is represented by Debra Bogo-Ernst, Samantha Booth, Bronwyn F. Pollock, Douglas A. Smith and Archis A. Parasharami of Mayer Brown LLP.

The case is America's Kids LLC v. Zurich American Insurance Co., case number 1:20-cv-03520, in the U.S. District Court for the Northern District of Illinois.

--Additional reporting by Daphne Zhang. Editing by Janice Carter Brown.

For a reprint of this article, please contact reprints@law360.com.

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Case Information

Case Title

America's Kids, LLC v. Zurich American Insurance Company


Case Number

1:20-cv-03520

Court

Illinois Northern

Nature of Suit

110(Contract: Insurance)

Judge

Honorable Virginia M. Kendall

Date Filed

June 16, 2020

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