Derek Scott Williams PLLC v. Cincinnati Ins. Co.

Summary

In this business interruption case resulting from mandatory shutdowns to control COVID-19, the court declined to grant a motion to dismiss the claim of the plaintiff as to coverage for loss of business income but does dismiss the claim of coverage under the civil authority provision of the policy. The court found the wording of the policy sufficiently vague, especially as to the meaning and definition of the word “loss.” In the case of the civil authority provision of the policy, the court decided that plaintiff has not alleged that“[a]ccess to the area immediately surrounding the damaged property is prohibited by civil authority.”

Case digest

COVID-19-related damages cases are making their way through state and federal courts. Plaintiffs typically are businesses that have suffered economic losses because of various mandatory shutdowns. They file claims with their insurance agency, which frequently denies coverage for business interruption losses. However, courts have sided with the defendant’s insurance company more often than not and dismissed the plaintiff’s case or ruled against the business owner. In the instant case, the plaintiff, Derek Scott Williams PLLC, operates a dental practice in Lufkin, Texas.

Background

“Williams alleges that it inquired about the insurance broker through which it purchased the Cincinnati policy. The broker advised that Williams should not file a claim.” Williams further alleges that insurers, including the plaintiff’s policy, covered loss of business income and loss due to actions of civil authority. Defendant made it clear it was not intending to honor claims for business losses relating to COVID-19. Plaintiff seeks a declaratory judgment that it is entitled to coverage. Defendant moves to dismiss for failure to state a claim. Williams contends that it is entitled to coverage under two separate provisions of the Cincinnati policy: the business income provision and the civil authority provision. 

Analysis and opinion

Since the insured property is located in Texas, both parties agree that Texas law applies in this case. Plaintiff seeks a declaratory judgment requiring the defendant to cover its losses. Defendant moves to dismiss for failure to state a claim. Its primary argument is that physical alteration to the property is required, and, in this case, there is none. In the policy, the term“loss” is defined as follows: “Loss means accidental physical loss or accidental physical damage.” (In other words, the term “loss” is used to define itself.) In a motion to dismiss for failure to state a claim, the court draws reasonable inferences in the plaintiff’s favor. Insurance contracts are interpreted under the general rules of contract interpretation. The goal is to give effect to the parties’ written expression of their intent. “If, after applying these rules, a contract is subject to two or more reasonable interpretations, it is ambiguous.” Ambiguities in insurance contracts are generally construed against the insurer. Referring to the ambiguity of the definition of loss and the terms“loss of” and “loss to,” “the Court concludes that Williams’s claims regarding the business income coverage state viable claims upon which relief may be granted.”As to the claim on coverage under the civil authority clause, the court says it needs to consider only one point: whether the civil authority prohibited access to the property. Plaintiff admits it was only “partial prohibited,” which the court notes are an oxymoron. Thus, the court dismisses the civil authority complaint but allows the “loss” clause complaint to go forward