Fla. Businesses Defend COVID-19 Coverage Claims

By Nathan Hale
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Law360 (November 12, 2020, 10:42 PM EST) -- A beauty salon and a restaurant operator suing Lloyd's of London told a Miami-based federal judge Thursday that their allegations of coronavirus contamination and facility alterations are enough to trigger coverage and upend the insurer's bid to dismiss their suits.

Underwriters with Lloyd's have argued in a pair of virtually identical motions to dismiss that Atma Beauty Inc., which operates a Miami Beach salon and spa, and Sun Cuisine LLC, which does business as Zest Restaurant and Market in downtown Miami, failed to allege direct physical loss or damage, as required for coverage under their "all-risks" policies, and also that exclusions for microorganisms and pollution doom their claims.

Pressed by U.S. District Judge Darrin P. Gayles during Thursday's phone hearing on why he should not follow a colleague's Nov. 3 dismissal of a dentist's coverage suit against Hartford Casualty Insurance Co. that found revenue losses stemming from COVID-19 did not constitute a physical loss, Atma Beauty's counsel said that unlike in that case, these businesses have alleged actual physical damages.

"Our allegations are, number one, direct contamination of the property by the coronavirus and, number two, these necessary physical alterations to mitigate and contain the contamination and the loss," said Pablo Rojas of Podhurst Orseck PA, noting that Atma Beauty has reduced its salon stations from 12 to three — a 75% drop — in response to the pandemic.

"It's commonplace, anytime you have business-interruption coverage, that the measure of those damages are a loss of business income, Rojas added. "That's what the policy plainly provides for. The question is what was the cause of that loss of business income."

Rojas argued that most of the dismissals in similar cases that Lloyd's cited came in suits where the policyholder relied on an argument that the revenue losses or government mitigation orders were sufficient on their own to show a loss or damage. The vast majority of dismissals also came in cases where the policies contained exclusions for virus-related losses, which does not apply in either of these cases, he added.

"There is no Florida case decided at the motion to dismiss phase based on similar pleadings," he argued.

Judge Gayles indicated that he did not agree with arguments made by Lloyd's counsel Armando Pedro Rubio of Fields Howell LLP that the businesses have to meet a heightened pleading standard. But when confronted with the judge's concerns about their pleadings, Atma Beauty and Sun Cuisine said they would welcome the opportunity to amend their claims to add greater detail, if the court felt it was needed.

The parties also sparred over whether exclusions in the businesses' policies for microorganisms and pollution apply to their claims.

Citing Webster's and the Oxford English Dictionary, Rubio told the court that the basic, plain language definitions of "microorganism" say the term covers viruses, and he slammed "esoteric" arguments from the plaintiffs about whether a virus is a living thing.

"We're not here to argue the meaning of life," he said.

Rojas and Benjamin J. Widlanski of Kozyak Tropin & Throckmorton LLP, who is representing Sun Cuisine, countered that under Florida law, it is the insurer's burden to demonstrate unambiguous application of the exclusion.

Because these are all-risk policies at issue, all losses are covered unless excluded by the insurer, they said. Lloyd's excluded coverage for losses arising directly or indirectly from catastrophic events such as war, nuclear radiation and biological warfare in their policies, but it did not mention viruses, pandemics, public health emergencies or government-mandated shutdowns, the businesses argued.

Judge Gayles held a joint hearing on the two cases, part of a nationwide wave of disputes over business-interruption insurance coverage arising as a side effect of the COVID-19 pandemic, because of the similarities between the policies and motions to dismiss.

The plaintiffs have moved for the court to consolidate these and other related cases, but Judge Gayles said during Thursday's hearing that in recent discussion with other judges in the Southern District of Florida, they agreed that they would each retain their respective cases at least through the motion to dismiss stage.

Atma Beauty is represented by Aaron S. Podhurst, Steven C. Marks, Pablo Rojas, Lea P. Bucciero, Matthew P. Weinshall and Kristina M. Infante of Podhurst Orseck PA.

Sun Cuisine is represented by Benjamin J. Widlanski, Frank A. Florio, Gail A. McQuilkin, Javier A. Lopez, Robert J. Neary, Rachel Sullivan and Harley S. Tropin of Kozyak Tropin Throckmorton LLP and Daniel E. Tropin and Jonathan Marc Streisfeld of Kopelowitz Ostrow Ferguson Weiselberg Gilbert.

The insurers are represented by Armando Pedro Rubio of Fields Howell LLP.

The cases are Atma Beauty Inc. et al. v. HDI Global Specialty SE et al., case number1:20-cv-21745, and Sun Cuisine LLC v. Certain Underwriters at Lloyd's London etc., case number 1:20-cv-21827, in the U.S. District Court for the Southern District of Florida.

--Editing by Haylee Pearl.

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

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