A Colorado state court recently joined a growing chorus of courts across the country rejecting insurance company arguments that there is no coverage for COVID-19-related losses and costs in under commercial property insurance policies, as COVID-19 cannot cause “physical loss or damage”. to legal ownership. In a written order dated January 26, 2022, the court denied Factory Mutual Insurance Company’s motion for partial judgment against the University of Colorado Regents and granted the Regents the opportunity to amend their pleading to add critical facts.
The University of Colorado Regents filed a lawsuit in 2021 against the world’s leading property insurer, Factory Mutual Insurance Company, seeking coverage under the company’s “all-risk” commercial property policy. The lawsuit seeks to recover more than $300 million in losses, costs and expenses incurred by the university system as a result of the COVID-19 pandemic. The lawsuit also seeks damages for Factory Mutual’s wrongful and bad faith denial of the Regents’ insurance claim.
Factory Mutual has sought to bring this case to a premature end by filing motions for partial judgment and a discovery order. Factory Mutual also resisted the Regents’ desire to amend their original complaint to provide newly developed factual evidence about a new communicable disease and Factory Mutual’s understanding of how its form of policy responds to disease-related losses. In doing so, Factory Mutual sought to deprive the court of the opportunity to understand the science behind COVID-19 and how COVID-19 damages property, as well as to discount evidence of Factory Mutual’s pre-COVID-19 understanding of transmission of its policy. illness coverage that contradicts the current litigation position and Factory Mutual’s denial of coverage.
Prior to the Jan. 26 ruling, the Colorado court dismissed Factory Mutual’s attempt to prevent the discovery. In two orders dated January 26, the court determined the following:
- The commercial property policy trigger requiring policyholders to demonstrate ‘physical loss or damage’ to property is ‘ambiguous’. Relying on long-standing precedent from the Colorado Supreme Court and the fact that courts across the country have been divided on this crucial issue, the court concluded that the term “physical loss or damage” was ambiguous and likely to more than a reasonable interpretation. The court acknowledged that “it is possible that an average insurance buyer would understand that ‘physical loss’ could include altering the structure of the insured property…or the inability to maintain a presence on the property. Thus, the court found that the Regents’ claims about the science of COVID-19 and its presence throughout the university system made it “plausible to conclude that a property could become so saturated with [COVID-19] contaminated objects, aerosols and droplets, that its buildings were uninhabitable.
- Regents plausibly alleged “physical loss or damage” because COVID-19 rendered its properties unusable for its intended purpose and physically altered them. The court also recognized that the Regents’ complaint set out a claim under either interpretation of “physical loss or damage” because the Regents alleged “both that COVID-19 prevented him from using his property and also that it altered the structure of the property by contaminating objects and lingering in the air.
- The policy’s “contamination exclusion” does not exclude coverage. Recognizing again that courts across the country are divided, the court rejected Factory Mutual’s assertion that the policy’s “contamination exclusion” clearly and unambiguously prohibited coverage of regents’ losses.
- The “Loss of Use” and “Loss of Market” policy exclusions do not prevent coverage. The court ruled that, based on argument, the policy’s “loss of use” and “loss of market” exclusions did not preclude the Regents’ insurance claim. Accordingly, the court recognized that the Regents’ interpretation of these exclusions makes all policy provisions plausible, contrary to Factory Mutual’s proposed contrary interpretation.
To take with
The decision reflects a growing trend of state courts breaking away from early and premature rulings by federal courts across the country. These subsequent rulings open the door for policyholders who have faced crippling losses, costs and expenses due to the COVID-19 pandemic and related closure orders to finally get the coverage they negotiated.
Policyholders wishing to obtain more information about the decision and its effects on them should consult an experienced lawyer.