Government & Legal Update
Advocacy Update: 6th Circuit Explains the "Hard Reality" of Insurance Contracts, COVID Claims A week before this magazine went to print, the U.S. Court of Appeals for the 6th Circuit (with jurisdiction over federal district courts in Michigan, Ohio, Kentucky, and Tennessee) became the third federal circuit court of appeals to rule in favor of insurers on a question whether lost income attributable to the pandemic and/or subsequent government shut-down orders was covered under an “all risk” commercial policy. In deciding Santo’s Italian Café v. Acuity Insurance Co., the 6th Circuit joined the 3rd and 8th circuits in ruling for insurers on the merits in similar cases. Plaintiff Santo’s operated an Italian restaurant in Medina, Ohio and, like most in the hospitality industry, the pandemic hit its bottom line particularly hard. In March 2020, Ohio Governor Mike DeWine declared a state of emergency due to COVID-19, and the Ohio Department of Health quickly followed with an order prohibiting in-person dining services across the state. As a result, Santo’s suffered significant revenue losses and filed a claim with Acuity, seeking recovery under its commercial property policy for losses incurred throughout the duration of the “shut down” order. Acuity denied coverage and Santo’s filed suit in Ohio state court. Acuity removed the case to federal court (diversity jurisdiction) and filed a motion to dismiss. The federal district court granted Acuity’s motion, and Santo’s appealed. The 6th Circuit Court of Appeals affirmed the ruling for Acu-
The Tennessee Insuror
ity, holding that the policy, which included business losses “caused by direct physical loss of or damage to property,” did not cover loss of use due to a government order. In ruling against the restaurant, Chief Circuit Judge Jeffrey Sutton sympathized with the plight of America’s hospitality industry, but acknowledged a “hard reality about insurance,” summarizing the tough lesson for many insureds (and politicians): “[Insurance] is not a general safety net for all dangers. If risk is not having money when you need it, insurance is one answer to perilous events that could prompt a sudden drop in revenue. Fair pricing of insurance turns on correctly accounting for the likelihood of the occurrence of each defined peril and the cost of covering it. Efforts to push coverage beyond its terms creates a mismatch, an insurance product that covers something no one paid for and, worse, runs the risk of leaving insufficient funds to pay for perils that insureds did pay for. That is why courts must honor the coverage the parties did – and did not – provide for in their written contracts of insurance. Although persuasive authority in Tennessee, the decision is not binding in Tennessee as the interpretation of insurance contracts is a matter of state law. The Covid Coverage Litigation Tracker, a project of University of Pennsylvania Carey Law School, 195 federal appeals are currently pending in similar cases, including 16 in the 6th Circuit. Notably, none of the pending 6th Circuit appeals originated in a district court in Tennessee.
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