Fourth Circuit Dismisses COVID-Related Business Interruption Claims

The named plaintiff in a purported class action, Elegant Massage, LLC (Elegant), had an all risk commercial property insurance policy with State Farm Mutual Automobile Insurance Company (State Farm).  On March 16, 2020, Elegant shut down its business in response to the COVID pandemic.  An executive order by Virginia’s governor followed one week later, ordering that all such businesses be shut down.   Elegant filed its claim under its insurance policy on March 17th, and State Farm denied it on March 26th.

As in the other cases COVID we’ve discussed, most recently here, the policy covered losses caused by “accidental direct physical loss” to the covered property.  In addition, the policy at issue had an exclusion for losses caused by virus.  State Farm denied coverage because Elegant’s closure had been “voluntary.”  It also cited the virus exclusion.  Elegant responded by making attempting to transform its claim into a class action lawsuit.  State Farm moved to dismiss.  The District Court denied the motion and certified a class consisting of businesses that claimed losses under policies between March 23rd and June 30, 2020.

In Elegant Massage, LLC v. State Farm Mutual Automobile Ins. Co., the Fourth Circuit reversed the District Court’s certification of the class and remanded with instructions to dismiss the case entirely.  One judge dissented from the part of the opinion that dismissed the case.  After some throat-clearing discussion of the court’s jurisdiction, the opinion turns to the merits.  The court found that Elegant’s property had suffered no direct physical loss and thus could not recover under the policy.  It thus found that the District Court had erred in certifying the class.  Exercising its pendant appellate jurisdiction, it also found that the District Court had erred in denying State Farm’s motion to dismiss.   It saw no need to address the virus exclusion.