By Eli Flesch

Law360 (May 19, 2021, 7:16 PM EDT) -- Western Union told a Colorado federal court that it doesn't need to show the coronavirus physically altered its properties to qualify for pandemic coverage from a Chubb unit, likening the virus to a gas leak that the state Supreme Court ruled a covered loss.

Responding to ACE American Insurance Co.'s bid to toss the case, Denver-based Western Union hit its insurer for giving "short shrift" to Colorado case law that it said showed physical alteration was not a prerequisite to coverage under policies requiring physical loss.

"ACE asks the court to do everything but apply Colorado principles of insurance contract interpretation to the policy that ACE actually issued to Western Union," it said.

Government restrictions put in place to curb the spread of the coronavirus forced Western Union to close many of its properties, and those used by its agents to conduct money transfers and financial services, the company said. It added that its notice of loss included examples of locations with confirmed coronavirus cases among workers.

Western Union is seeking $100 million in coverage under an "all-risk" policy with ACE.

The company asserted that no Colorado state court has ever required physical alteration as a precondition to coverage under all-risk policies. It pointed to a 1968 ruling by the state Supreme Court holding that a church forced to close because of a gas leak had adequately shown the "direct physical loss" required under its own policy.

Western Union said the gas, like the coronavirus, didn't physically alter any building.

In April, ACE argued that Western Union failed to show any physical damage to its properties. Noting that the issue of whether the coronavirus causes such damage hadn't yet been taken up by a Colorado federal court, it pointed to decisions from courts across the country holding that virus losses aren't covered without physical loss or damage.

"The COVID-19 pandemic does not provide a basis to discard well-established rules of contractual interpretation or to rewrite insurance contracts to impose financial obligations insurers never agreed to undertake," ACE said in its dismissal bid.

The insurer also pointed to contamination and pollution exclusions in its policy with Western Union as reasons the court should throw out its case. Those exclusions, ACE said, account for losses resulting from dangerous materials including viruses.

Federal courts across the country have dismissed most policyholder suits seeking coverage for pandemic losses, according to a database maintained by the University of Pennsylvania Carey School of Law. Over 80% of such cases have been dismissed.

Policyholders have fared better in state courts, though, surviving 45% of dismissal bids.

ACE has been litigating its own share of pandemic coverage cases across the country, including against a Pennsylvania hotel operator seeking $125 million in coverage, and against the Reno, Nevada-based Caesars Entertainment Inc., which is seeking $2 billion in coverage from ACE and 36 other insurers.

Counsel for the parties in the Western Union suit didn't immediately respond to requests for comment.

Western Union is represented by Kevin McAdam of Holland & Hart LLP, and by John W. Schryber and Andrew M. Weiner of Reed Smith LLP.

ACE is represented by Amy M. Samberg and Tamara C. Jordan of Clyde & Co. US LLP.

The case is The Western Union Co. v. Ace American Insurance Co., case number 1:21-cv-00127, in the U.S. District Court for the District of Colorado.

--Additional reporting by Shawn Rice and Daphne Zhang. Editing by Vincent Sherry. 

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