A recent R.I. Supreme Court ruling has dashed the hopes of many businesses seeking millions of dollars in COVID-19-related claims from insurers, but it could also have lingering effects on similar cases.
In June 2021, Josephson LLC, also known as The Moinian Group, filed a lawsuit in R.I. Superior Court claiming that a subsidiary of the Johnston-based commercial property insurer FM Global should cover more than $90 million in losses the company faced during the pandemic.
Moinian, one of the largest private real estate companies in the U.S., said it couldn’t use
its properties as a result of near economic shutdown that took place during the pandemic. The company argued that this loss in revenue qualified as a “physical loss or damage” within its insurance policy.
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FOR STARTERS: R.I. Supreme Court Associate Justice Brian P. Stern made the initial ruling in favor of an FM Global subsidiary in a lawsuit involving COVID-19-related claims.
COURTESY ROGER WILLIAMS UNIVERSITY[/caption]
Earlier, Superior Court Associate Justice Brian P. Stern had ruled in favor of Affiliated FM Insurance Co., finding that there must be some physical alterations to properties for there to be any “physical loss or damage.”
He also found that coverage for the COVID-19 pandemic was “unambiguously barred” under the policy’s contamination exclusion. According to the policy, a contaminant is “any foreign substance, impurity, pollutant, hazardous material, poison, toxin, pathogen or pathogenic organism, bacteria, virus, disease-causing or illness-causing agent, fungus, mold or mildew.”
The case was appealed to the R.I. Supreme Court, where the judges ultimately upheld Stern’s decision in May.
But Moinian isn’t alone. It’s one of dozens of companies that have brought claims against FM Global – which changed its brand name to FM in July – and thousands across the country that took other insurers to court over COVID-19-related claims.
The Rhode Island ruling is consistent with the vast majority of other court decisions nationwide that have addressed similar issues.
But now with the R.I. Supreme Court precedent-setting decision, any businesses in Rhode Island with similar policies seeking COVID-19-related claims will likely lose, says John Ellison, senior partner at Reed Smith LLP who wrote an amicus brief in support of Moinian.
And the decision’s effects could extend beyond COVID-19.
“The fight over these specific kinds of cases is basically over,” Ellison said. “But the battlefield just moves.”
The decision means any company with an insurance policy similar to Moinian’s with the same definition of contamination will likely lose if they take their insurer to court. Ellison says this means businesses seeking these types of claims will have to find a new way to argue them. He says he wouldn’t be surprised if insurance companies started offering pandemic or virus policies.
Andrew Spacone, a professor of business law at the Roger Williams University School of Law, says insurance companies aren’t likely to change the policies now that they’ve had success in beating these claims in court, but insurance companies would likely offer new policies if they believe they will reap profits from it.
A spokesperson for FM declined Providence Business News’ request for comment.
While businesses with similar contamination exclusions like Moinian’s won’t retrieve claims from insurers, Spacone says there could be different interpretations of whether COVID-19 qualifies as a “physical loss or damage.”
He referenced a recent Calif. Supreme Court ruling that found COVID-19 was not considered a “direct physical loss or damage” under the policy. Because Moinian’s policy with FM didn’t include the word “direct,” it could be argued – if there was no contamination exclusion – that the meaning of “physical loss or damage” is broad enough to include COVID-19.
“There is an opening there,” Spacone said, noting it’s not likely the R.I. Supreme Court would have accepted the argument.
In its ruling, the court didn’t tackle the issue of whether COVID-19 constituted property loss or damage but assumed it for the sake of argument. Interestingly, Spacone notes, the U.S. District Court for Rhode Island addressed this issue two months later in another case involving a Rhode Island manufacturer and a different insurer.
The federal court agreed with Stern’s interpretation – and the interpretation of many other courts – that COVID-19 is not “physical loss or damage.”
Ellison says he respects the R.I. Supreme Court’s ruling but adds that he believes the reading of the contamination exclusion was too broad.
He says the way the Supreme Court interpreted exclusion and what is considered a contaminant took virtually all coverage away – including under the regular policy. Meaning it was never really there to begin with, he says.
“They wiped out pretty much all of the coverage that could have existed,” Ellison said. “It’s hard to determine what is left.”
Spacone was also the former deputy general counsel and assistant secretary of Textron Inc., where he managed insurance coverage disputes, including one cited in the R.I. Supreme Court’s decision on Moinian’s case. The case Spacone worked on established that if there is ambiguity in an insurance policy, the interpretation is “strictly construed” against the insurance company.
But in this case, Spacone says it’s clear that given the policy’s definition of contamination, COVID-19 falls under the contamination exclusion.
