A California federal district court has refused to dismiss a COVID-19 related coverage suit filed by a San Diego preschool against it's insurer based on a communicable disease exclusion in the school's insurance policy. The case is Baldwin Academy et al. v .Markel Insurance Co. et al.
According to the ruling, on Saturday March 14th of 2020, a parent of one of Baldwin Academy's students notified the school staff that she and the student's grandparent had tested positive for COVID-19. The parent had visited the school's campus to pick up their child several times in the days prior to the positive test. After receiving notice from the parent of the positive test, the school notified parents on Sunday, March 15th that the school would be closed starting the following day.
On March 16th, the mayor of San Diego issued an executive order in response to COVID-19. Three days later, California Governor Gavin Newsom issued an executive order which directed all Californians to stay at home.
Baldwin Academy filed a business income loss claim with it's insurer, Markel Inc., who denied the claim. The school filed suit against Markel for breach of contract and breach of the implied covenant of good faith and fair dealing, seeking declaratory relief.
In the ruling handed down in the middle of December, the court noted that the case was unique compared to other COVID-19 litigation, which has been "uniformly rejected," because Baldwin sought coverage under the "California Business Income Changes – Communicable Disease and Food Contamination" endorsement in its coverage rather than the more "traditional" business income or civil authority provisions.
The ruling noted that there was no dispute between the parties that COVID-19 counted as a "communicable disease" as defined in the policy. It also said that Markel's denial of the claim was based on three conditions that must be satisfied in order for the claim to be eligible for coverage; an outbreak of a disease; a shutdown or suspense of operations based on a governmental authority's order; and the government-ordered shutdown had to be the result of the outbreak.
Markel argued that Baldwin did not suffer an outbreak, and that the school's closure was voluntary as it occurred before the government-issued orders and therefore was not the result of a government order. Markel also argued that the government-ordered closure was not the result of anything that occurred at Baldwin Academy.
The court disagreed, finding that the parent's report gave rise to a "plausible inference" that a case or outbreak of COVID-19 had occurred at Baldwin.
The court determined that Baldwin Academy "plausibly alleged" that the school shutdown was the result of orders issued by the mayor and governor, noting that the closure was effective on the same day that the executive order was issued. The court disagreed with Markel's argument that the endorsement required the government-ordered shutdown to be caused by an outbreak at the premises, finding that the endorsement did not necessarily "require this causal relationship."
The court refused Markel's motion to dismiss the case.
Editor's Note: As mentioned in the case above, this case is different from the cases that the insurance industry has seen regarding COVID-19 so far, namely cases filed on the basis of business income or civil authority provisions. The extension noted in this case was the "California Business Income Changes – Communicable Disease and Food Contamination." A non-state specific example of that coverage can be found here.