By Shawn Rice

Law360 (May 5, 2021, 7:58 PM EDT) -- Factory Mutual Insurance Co. can't escape Cinemark's suit asserting that the coronavirus damages property by changing the content of the air, a Texas federal judge ruled Wednesday, saying the theater chain's claims are distinguished from those in another business interruption case that was recently dismissed.

U.S. District Judge Amos L. Mazzant III denied Factory Mutual's bid for a win in Cinemark Holdings Inc.'s business interruption suit, saying the losses to the third-largest U.S. movie theater chain from the COVID-19 pandemic are potentially covered under a communicable disease provision.

Judge Mazzant sidestepped Selery Fulfillment Inc. v. Colony Insurance Co., where he tossed a Texas e-commerce logistics provider's suit in March. That policyholder, unlike Cinemark, alleged that the coronavirus only caused the partial inability to use the property, not that the virus entered the property, he said.

"Cinemark's policy is much broader than the one in Selery and expressly covers loss and damage caused by 'communicable disease,'" Judge Mazzant said. "Both parties agree 'communicable disease' encompasses COVID-19. At this stage of the proceedings, Selery is distinguishable."

Over 1,700 Cinemark employees were either positive for the coronavirus, exposed to it or showed signs of COVID-19, according to the November suit, which said the positive cases forced the closure of the theaters and losses.

In its bid for judgment on the pleadings, Factory Mutual had urged the judge to rely on his recent dismissal ruling that determined government shutdown orders weren't found to have caused a physical loss to logistics provider Selery.

"Selery sued and alleged that COVID-19 and the resulting government orders caused a direct physical loss or damage to its property," Judge Mazzant recalled in Wednesday's ruling. "The court granted the motion to dismiss because mandatory authority suggests that 'physical loss' requires a physical alteration of the property."

But Judge Mazzant said Cinemark alleged a different harm from the coronavirus, in which the virus as a "deadly communicable disease" changes the content of the air at its theaters. Cinemark alleged that the coronavirus was at its theaters and damaged property by changing the content of the air, he said.

The ruling is a standout in Texas as it distinguishes the language of the policy and how policyholders allege losses caused by the presence of the coronavirus or the related government shutdown orders.

Recent data from the University of Pennsylvania Carey Law School shows that policyholders have suffered losses in 13 of 15 pandemic-related coverage suits in Texas federal courts. Two weeks ago, Judge Mazzant tossed a local spice and tea room's suit, finding there wasn't a physical loss caused by government shutdown orders.

Michael S. Levine of Hunton Andrews Kurth LLP, counsel for Cinemark, told Law360 on Wednesday that his client is "very pleased" with Judge Mazzant's ruling that there is a potentially covered loss.

"The court made the effort to consider Cinemark's actual allegations and the specific policy wording at issue, a step that other courts have neglected," Levine said. "Too many courts are overlooking this fundamental duty at the carriers' urging to simply follow decisions, which happen to be factually and materially distinguishable."

Steve Zenofsky, Factory Mutual's assistant vice president of public relations, told Law360 that the insurer values the long-term relationships with its policyholders.

"It is unfortunate when legal matters arise because we strongly believe our insurance policies are clear on the coverage provided," Zenofsky said.

Cinemark is represented by Michael S. Levine, Rachel E. Hudgins, Joseph T. Niczky and Casey L. Coffey of Hunton Andrews Kurth LLP and by Melissa R. Smith of Gillam & Smith LLP.

Factory Mutual is represented by Thomas H. Cook Jr., Shannon M. O'Malley and Michael P. O'Brien of Zelle LLP and Emileigh S. Hubbard of Henry Oddo Austin & Fletcher PC.

The case is Cinemark Holdings Inc. v. Factory Mutual Insurance Co., case number 4:21-cv-00011, in the U.S. District Court for the Eastern District of Texas.

--Editing by Abbie Sarfo.

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