Law360 (May 27, 2021, 8:24 PM EDT) -- An art gallery owner is asking the Ninth Circuit to revive its bid for pandemic loss coverage, saying a virus provision in its policy with Sentinel Insurance Co. unit Hartford entitles it to coverage for losses resulting from government restrictions.
Billing its appellate suit as one of the first in which a policyholder purchased virus coverage, Kevin Barry Fine Arts Associates said on Wednesday that a California federal court erred when it failed to properly account for multiple meanings of physical loss. It contended that direct physical loss can occur when properties like its three galleries can no longer be used for their intended purpose — in this case, because of the pandemic.
In a separate filing, Kevin Barry also asked the court to throw the question of whether direct physical loss includes loss of access to the California Supreme Court.
"If Sentinel wished to limit coverage to 'total and complete' or 'unrecoverable' physical loss, or physical damage that 'permanently changed the condition of the property,' it could have done so," the gallery owner said in a 102-page brief.
Alexander J. Berline, an attorney for Kevin Barry and a partner at Hanson Bridgett LLP, told Law360 that the gallery owner is seeking a ruling that would affirm the coronavirus causes a covered physical loss. He said the gallery owner and other businesses bought insurance precisely to cover loss of use of property. Accusing Hartford of playing games, he said the insurer could have issued a more targeted policy, rather than one he described as broad and ambiguous.
"If their intent was to never ever, ever cover viruses and global pandemics, then put an exclusion in the policy that says global pandemics aren't covered. How hard is that?"
He described the virus endorsement in its policy as a hallmark of Sentinel coverage, distinguishing the insurer from others. In its brief Wednesday, Kevin Barry said Sentinel's characterization of the endorsement as a virus exclusion was misleading.
While some exclusionary language was included in the policy, it also expressly provided coverage for bacterial and viral losses, the gallery owner said.
Berline added, "If a virus can never cause physical loss or physical damage, which is what the [California district] court found, then what the hell does this endorsement do?"
Counsel for Sentinel did not immediately respond to requests for comment.
There is a $50,000 separate policy limit under the virus endorsement for each of Kevin Barry's insured properties, according to court documents.
"We're not trying to bankrupt the insurance industry. We're simply asking them to pay what they promised to pay," Berline said. "If we win our case — 150 grand. That's not going to bankrupt Hartford. And even if this decision gets applied to thousands and tens of thousands of their customers in California, it's still not going to bankrupt then."
Kevin Barry was forced to shut down three gallery locations in San Francisco, Los Angeles and Las Vegas as a result of state and local orders, it said in a complaint filed last July. The galleries feature a range of contemporary work, from traditional paintings to sculpture, photography and digital art, according to Kevin Barry's website.
In January, the California federal court declined to consider whether the gallery owner met the conditions for coverage under the virus endorsement because it said it failed to show any direct physical loss to the galleries. Kevin Barry could not have plausibly alleged damage to their galleries, even if they were able to show the presence of the coronavirus, U.S. Magistrate Judge Sallie Kim wrote in her decision.
"KBFA does not allege that it lost access to the properties, but merely that it was not allowed to operate its business out of the properties," Judge Kim added, saying direct physical loss does not include temporary loss resulting from stay-at-home orders.
On Wednesday, Kevin Barry asked the Ninth Circuit to let the California Supreme Court decide whether the language of direct physical loss in a policy can include the loss of use of a property. Citing differences in opinion on the matter nationally and in California courts, the gallery owner acknowledged that its case depended on the answer.
"The resolution of that issue could also affect hundreds or thousands of Californians who, like KBFA, carried business interruption insurance policies and seek to rebuild after over a year of shelter-in-place orders occasioned by the coronavirus pandemic," the gallery owner said in the additional filing.
Berline said the galleries requested that the California Supreme Court take up the question partly as a matter of efficiency, saying it would sow discord for the Ninth Circuit to issue a decision on the matter, only to be overruled by the state supreme court.
Kevin Barry's suit is one of a number brought by policyholders that failed to succeed in district court. Over 80% of such cases have been permanently dismissed, according to data compiled by the University of Pennsylvania Carey Law School. Only a small minority of policies provide coverage for communicable diseases, the data showed.
Kevin Barry is represented by Alexander J. Berline, Josephine Mason Petrick and Sean G. Herman of Hanson Bridgett LLP.
Sentinel is represented by Laurie Edelstein and Anthony J. Anscombe of Steptoe & Johnson LLP, Jonathan M. Freiman, Tadhg Dooley, David R. Roth and Shai Silverman of Wiggin and Dana LLP.
The case is Kevin Barry Fine Art Associates v. Sentinel Insurance Company, case number 21-15240, in the U.S. Court of Appeals for the Ninth Circuit.
--Editing by Haylee Pearl.
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