A federal appeals court has reversed a trial court’s ruling that preserved a putative class-action lawsuit against State Farm entities that denied coverage to a massage spa seeking to recoup lost business revenues due to the COVID-19 pandemic.
The 4th Circuit Court of Appeals said in its decision State Farm Mutual Automobile Insurance Co. and State Farm Fire and Casualty Co. should have been granted a dismissal of a putative class action filed by Elegant Massage LLC for losses stemming from the pandemic.
As in many prior cases, Elegant Massage, which had an “all-risks” policy with State Farm, sued after the carrier denied coverage for losses driven by state government orders to close nonessential businesses during the early stages of the pandemic. State Farm argued in a motion to dismiss the case that the virus did not cause “direct physical loss” to the premises, putting the spa’s financial losses outside its insurance coverage.
Unlike many district courts, however, an Eastern District court in Virginia ruled the term “direct physical loss” was ambiguous under Virginia law and allowed the lawsuit to proceed
Ordinarily, federal appeals courts have jurisdiction over final decisions by district courts, the ruling said, but the motion to dismiss was not considered “final.”
However, citing a doctrine of “pendent appellate jurisdiction,” the 4th Circuit said it could take up the question about the motion to dismiss as well as the class-action question, saying they were so interconnected as to require a concurrent review.
The appeals court said it recently had handled another similar case involving COVID-19 and business losses, holding Cincinnati Insurance Co. was not obligated to pay Uncork and Create LLC as the virus did not cause direct physical damage to the property.
Citing the precedent from the earlier case, the appeals court ruled the district court erred in dismissing State Farm’s motion to dismiss the case, therefore dooming the spa’s bid for a class action.
It remanded the case back to the district court with an order to dismiss it entirely.
An attempt to obtain comment from State Farm and an attorney for Elegant Massage was not immediately successful.
New York’s highest court made it clear in February insurers using the right contracts are not obligated to cover business losses caused by the COVID-19 pandemic.