Connecticut Court Affirms Dismissal in Part of Tribe’s COVID Business Interruption Claim

The Mashantucket Pequot (the Tribe) are a federally recognized Indian Tribe with a reservation in Connecticut, where they operate the Mashantucket Pequot Gaming Enterprise, doing business as Foxwoods Resort Casino. The Tribe took out an “all risks” insurance policy with Factory Mutual Insurance Company (Factory).  The Tribe, like so many others, claimed losses (amounting to $76 million) due to the COVID-19 pandemic.  In order to bring their losses within the coverage of the policy, they claimed that the virus effected “physical loss and damage to [Tribal] property.”

Factory responded with a motion to strike the complaint based on a policy exclusion for viruses.  Moreover, it argued that the Tribe had not alleged that COVID-19 was present on its premises.  The Tribe responded, arguing that COVID-19 was a communicable disease, not a virus, and the policy covered harms caused by communicable diseases.  The trial court agreed with Factory that harms caused by viruses were not covered, but it sided with the Tribe’s argument that harms attendant to communicable diseases were covered.  However, the coverage for costs associated with communicable diseases was subject to a $1 million aggregate cap.  That is highly significant, given that the coverage for the policy generally was capped at $1.655 billion.

The parties entered a stipulation that the Tribe agreed to have its surviving claims dismissed with prejudice.  I imagine that the parties settled as to those claims.  But the Tribe also appealed the grant of partial summary judgment.  The Appellate Court of Connecticut stayed proceedings to await the outcome of two cases pending before the Connecticut Supreme Court.  In April, the Appellate Court issued its decision in Mashantucket Pequot Tribal Nation v. Factory Mutual Ins. Co.

Once those cases were handed down, the Appellate Court, like the trial court, concluded that the Tribe’s claims did not fall within the policy coverages for physical loss or damage or time element loss. Moreover, they were subject to the policy’s contamination exclusion. Following recent Connecticut Supreme Court cases, the court held that the Tribe must allege facts showing “some physical, tangible alteration to or deprivation of the property that renders it physically unusable or inaccessible.”  The Tribe failed to do so.  Although the Tribe alleged that COVID-19 could linger on surfaces, the court noted that it could be eliminated through cleaning or just waiting for a few days for the virus to expire.

The Tribe attempted to distinguish its policy from those treated in prior cases by noting that Factory’s policy included an “additional coverage” for physical losses or damages caused by, among other things, communicable diseases.  The problem remains: the communicable disease in question, courts have uniformly held, does not cause physical loss or damages. 

Because the Tribe had withdrawn its claims subject to the $1 million cap, all that remained were its claims under the coverage for physical loss or damages.  On that subject, the Appellate Court affirmed the trial court’s grant of the motion to strike.