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Law360 (November 30, 2020, 3:55 PM EST) -- An Iowa federal judge ruled Monday that the insurer of a group of Iowa bars is not obligated to cover financial losses resulting from COVID-19 closure orders, finding that the eateries failed to allege "direct physical loss or damage to their covered properties."
Chief District Judge John A. Jarvey held that because Whiskey River on Vintage and two other Whiskey River locations had a virus exclusion provision in their coverage, breach of contract and bad faith claims against Illinois Casualty Company failed.
His decision comes amid a slew of rejected COVID-19 insurance claim suits, which have ruled that hospitality locations without a virus provision in their policies must show physical damage to properties to collect under their policies.
"Reading the policy language as a whole, the policy is unambiguous in its requirement that an insured suffer 'direct physical loss of or damage' to the insured property to qualify for the Business Income provision," Judge Jarvey wrote, adding that other Iowa courts have interpreted insurance policies this way before.
"As such, the Court concluded 'physical loss or damage' requires a material loss, which calls for something more than a threat of loss," he said in granting the insurer judgment on the pleadings.
In its suit initiated in an Iowa county court in May, Whiskey River alleged that it was losing $80,000 per month of closure starting in March but had been denied coverage. The insurer removed the case to federal court in June.
The group argued that before rejecting its insurance claims, no one from Illinois Casualty Company bothered to see whether COVID-19 was present in any of the locations or whether any employees or customers contracted the virus.
An attorney for Whiskey River, James Carney of Zenor Kuehner PLC, told Law360 that it was obvious Judge Jarvey put a lot of thought into the decision but said his clients would likely appeal.
"We knew from the beginning it was going to be tough," Carney said in a phone interview. "Obviously, our position is that a complete loss of your use of the facility that you have is the same as — it's equivalent to — a direct physical loss."
A North Carolina judge last month ruled for the first time that COVID-19 losses stemming from the shutdowns counted under physical loss coverage.
However, in the Iowa case, the insurer successfully argued that a virus is not included in the insured causes of a business closure and said that Whiskey River and its associates did not even attempt to show physical loss to its properties.
Counsel for Illinois Casualty Company did not respond to a request for comment by the time of publication Monday.
Whiskey River and its associates are represented by James W. Carney and Nicholas J. Mauro of Carney & Appleby PLC.
Illinois Casualty Company is represented by Adam D. Zenor and Michael C. Kuehner of Zenor Kuehner PLC.
The case is Whiskey River on Vintage Inc. et al. v. Illinois Casualty Company, case number 4:20-cv-00185, in the U.S. District Court for the Southern District of Iowa.
--Editing by Jill Coffey.
Update: This story has been updated with comment from Whiskey River's counsel.
For a reprint of this article, please contact reprints@law360.com.
