Wisc. Tribe Says Insurers Can't Dodge COVID Coverage Suit

By Andrew Westney
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Law360 (May 10, 2021, 8:59 PM EDT) -- The Menominee Indian Tribe of Wisconsin has urged a California federal judge not to toss a proposed class action seeking COVID-19 coverage from several insurance companies, saying the kinds of problems the pandemic has caused the tribe's casino and other businesses meet the standards established in earlier suits.

Lexington Insurance Co. and other insurers asked the court last month to toss the tribe's suit seeking COVID-19 business-interruption coverage for a proposed class that purchased insurance from a tribal property insurance plan, arguing that they failed to allege physical loss or damage to their insured properties that would trigger coverage under the policy.

The Menominee tribe, along with its Menominee Casino Resort and the Wolf River Development Co., said in a response Friday that two suits in the same court by policyholders over coronavirus business-interruption coverage that were dismissed last year actually back the tribe's claims against Lexington and the other insurers.

While Lexington, whose motion to dismiss was joined by several other insurers, is "essentially maintaining if not outright saying — contrary to this court's earlier rulings — that there exists no circumstance in which a policyholder can recover for COVID-19 losses," the tribe's amended complaint follows the "roadmap" for such claims laid out in those earlier cases, according to the Menominee.

The tribe said it "need[s] only allege that COVID-19 was present on its property and rendered the property unsafe or diminished its function" to show physical loss or damage, and "there is no further requirement of structural alteration of the property." And the insurers' "contention that COVID-19 harms people, not property does nothing to make the Menominee's allegations less plausible," according to the tribe, and it should be left to a jury to decide whether the evidence supports the tribe's claims.

The Menominee first filed the proposed class action in November in California state court, before it was removed to a federal venue in January. The tribe amended its complaint in March, asserting breach of contract claims. The tribe owns a number of businesses including hotels, casinos, restaurants and health care facilities, all of which have suffered direct physical losses or damages from the coronavirus, according to court documents.

The proposed class purchased a 10-year policy from the Tribal Property Insurance Program that ended in July. The policy, prepared by Tribal First, which is an Alliant Underwriting Services Inc. program, holds a number of insurance policies from more than a dozen insurance carriers, court documents show.

The Menominee tribe said it submitted its claim to the insurers to help cover business-interruption losses from the pandemic and closure orders, which the insurers denied. By denying coverage, the insurers breached their coverage obligations under the policy, the proposed class argued.

In seeking dismissal of the case, the insurers, which also include Endurance Worldwide Insurance, Allied World National Assurance Co., Arch Specialty Insurance Co., Liberty Mutual Fire Insurance Co., Landmark American Insurance Co., Evanston Insurance Co. and Hallmark Specialty Insurance Co., argued that the tribe hadn't adequately alleged physical loss or damage and that its insurance policies clearly include virus exclusions that foreclose its bid for coverage.

The question of whether businesses are incurring physical damage from the pandemic worthy of loss coverage has fueled litigation across the country, as business owners face off against insurers in court over pandemic-related loss claims. In Missouri, a federal judge ruled in August that the presence of the virus made a property unusable and, therefore, triggered a physical loss.

On Friday, the Menominee tribe said it brought claims similar to those from Studio 417 and other hair salons and restaurants in the Missouri case, in which the court rejected an insurer's assertion that its policies' core requirement of direct physical loss or damage can be satisfied only by a tangible alteration to property.

"Just like the plaintiffs in Studio 417, the Menominee have alleged that persons with COVID-19 were on covered property, infected the covered property, and rendered it unsafe and diminished its function," the tribe said, noting that 42 employees of its businesses tested positive for COVID-19 last year.

The tribe also argued that two other decisions from the Northern District of California — though they didn't go the plaintiffs' way — established standards for bringing coronavirus-related complaints that the tribe is able to meet.

In November, the same judge overseeing the current case, U.S. District Judge William H. Orrick, axed a suit from Hawaiian souvenir store chain Water Sports Kauai Inc. seeking COVID-19 loss coverage from Allianz insurance units, ruling that the "mere threat of coronavirus" does not cause a direct physical loss of or damage to covered properties.

And in September, another Northern District of California judge tossed a proposed class action filed by children's clothing boutique Mudpie Inc. against Travelers Casualty Insurance Co. of America, concluding that because the retailer hasn't alleged that COVID-19 was present or directly caused the loss, there was no physical force that led it to lose business.

The Menominee tribe said in its response that the court "ruled against the policyholders in those cases, dismissing their complaints, but in doing so also set forth the legal principles that govern whether subsequent COVID-19 business-interruption insurance complaints would sufficiently state a claim." The tribe argued it had adequately alleged "direct physical loss or damage" to its property under the business-interruption provisions of its policy as well as several other provisions.

The tribe said it's not required to show structural alteration to its property to show damage or loss, but that it has nevertheless alleged that the coronavirus had changed its property and made it "dangerous to handle and/or enter," and that the virus "cannot be eliminated by simple cleaning and disinfecting."

And the tribe contended that its policy "does not include, and is not subject to, an exclusion for losses caused by the spread of viruses or communicable diseases."

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

The proposed class is represented by Andrus Anderson LLP, DiCello Levitt Gutzler LLC, Burns Bowen Bair LLP and the Lanier Law Firm PC.

The insurers are represented by Zelle LLP and Gibson Dunn & Crutcher LLP.

The case is Menominee Indian Tribe of Wisconsin et al. v. Lexington Insurance Co. et al., case number 3:21-cv-00231, in the U.S. District Court for the Northern District of California.

--Additional reporting by Melissa Angell, Shawn Rice and Lauren Berg. Editing by Breda Lund.

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

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