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Law360 (July 10, 2020, 1:36 PM EDT) -- The Cincinnati Casualty Co. is asking a Pennsylvania federal court to throw out claims that a bar and restaurant is owed coverage for losses after the state closed nonessential businesses in response to COVID-19, saying the policy only covers physical damage, not a virus transmitted from human to human.
In a motion to dismiss filed Thursday, the insurer slammed a lawsuit filed in April by Milkboy Center City LLC seeking coverage, saying the property insurance policy only kicks in if there's been a physical alteration to the property, and that the suit is attempting to create coverage where none exists.
"Coronavirus (or 'COVID-19') does not damage property; it hurts people," the insurer wrote. "Humans infecting humans — through direct contact, or otherwise — is not direct physical loss to property."
Milkboy, a bar, restaurant and music venue, filed the proposed class action suit in April, seeking to represent Cincinnati customers nationwide that had business income, extended business income, extra expense or civil authority insurance policies. Subclasses would cover customers that were either denied claims for losses related to the closure orders, or were seeking declaratory judgment that such claims should be covered.
Milkboy's suit had originally included the Cincinnati Insurance Co., Cincinnati Indemnity Co. and Cincinnati Financial Corp. as defendants, before they were voluntarily dropped from the suit in May, according to court documents.
In Thursday's motion, Cincinnati said the physical loss or damage requirement is fundamental to all the coverage in Milkboy's policy, and the lack of physical loss dooms the restaurant's claims for loss of income, as well as its claims under the civil authority coverage.
Neither the virus nor government closure orders altered Milkboy's property in any way, the insurer argued, saying that nowhere in the complaint does Milkboy allege that the virus was ever present in its property.
That the virus can be killed and wiped off by cleaning the property is another point against coverage, so that means COVID-19 did not alter the property or damage it, Cincinnati argued. The insurer also said that the lack of a virus exclusion in the policy does not grant coverage, because Milkboy would still need to show it suffered a physical loss.
In addition, the insurer argued that Milkboy was never prohibited from accessing its place of business by the government shutdown orders, which expressly allowed employees to come in for minimum operations and encouraged restaurants to continue with orders and take-out.
A spokesperson for Cincinnati Casualty said the company does not comment on pending litigation, but is committed to helping its clients manage risks and promptly paying claims.
Daniel E. Bacine of Barrack Rodos & Bacine, representing Milkboy, told Law360 on Friday that they expected a motion to dismiss, as virtually all the insurance companies facing these claims have denied them.
"We intend to respond in accordance with the requirements under the rules, and we expect to prevail on the motion," he said.
The issue of "physical loss" has been at the center of numerous suits filed in the last several months over coverage stemming from COVID-19, with policyholders arguing that the virus and shutdown orders constitute a physical loss and insurers claiming that phrase only applies to damage to property.
Last week, a Michigan federal judge sided with insurers, dismissing a $650,000 suit and telling a restaurant that it did not suffer physical loss or damage due to the virus or shutdown orders, the first time one of the suits has been decided on the merits.
Milkboy is represented by Daniel E. Bacine, Mark R. Rosen, Jeffrey A. Barrack, Stephen R. Basser and Meghan J. Talbot of Barrack Rodos & Bacine.
Cincinnati Casualty is represented by Lawrence M. Silverman of Litchfield Cavo LLP.
The case is Milkboy Center City LLC v. The Cincinnati Insurance Co. et al., case number 2:20-cv-02036, in the U.S. District Court for the Eastern District of Pennsylvania.
--Additional reporting by Matthew Santoni and Jeff Sistrunk. Editing by Alyssa Miller.
Update: This story has been updated with Cincinnati Casualty's response to a request for comment, and with a comment from Milkboy's attorney.
For a reprint of this article, please contact reprints@law360.com.
