Missouri College Sues Insurance Company Over Virus Deletion Endorsement Clause

A Missouri college is in the process of suing an insurance company for its failure to provide coverage related to COVID-19 economic losses. The Lindenwood Female College of Saint Charles is suing Zurich American Insurance Company in a class action lawsuit. The suit is seeking coverages in regards to the school’s lost revenue due to COVID-19 closures. The college’s initial $100 million policy contained a contamination exclusion for losses stemming from, among other things, viruses. But the policy also contained an “amendatory endorsement” that removed the word “virus” from its definition of contamination. The case against Zurich hinges on the legal meaning and construction of this amendment.

The Plaintiff: Lindenwood

Lindenwood brought this class action lawsuit on behalf of itself and other similarly situated colleges that have policies with Zurich. Lindenwood is a private liberal arts college serving over 7,500 students. Its main campus is located in Saint Charles, Missouri, with other campuses located throughout the state and in Illinois. As a result of the COVID-19 pandemic and related governmental restrictions, the college closed its campuses in mid-March 2020 and has still not yet been able to resume normal operations on the insured properties. The virus had been physically present on the campuses, with its first case confirmed on March 25, 2020, after a student tested positive.

Lindenwood alleges that its closures led to substantial losses, with room and board refunds in excess of $5,000,000. In addition, the college lost significant revenue in the form of tuition and fundraising income. It also saw lost income in relation to extracurricular activities, athletics, book stores, and retail outlets. Further, the college missed out on rental income earned from hosting special events on the property. The college alleges it incurred additional expenses such as those associated with switching to virtual learning and working from home. Its additional costs also relate to enhanced safety measures such as cleaning and sanitizing.

Class Action Allegations

As the complaint argues, the presence of COVID-19 on Lindenwood’s campuses rendered the property uninhabitable. COVID-19’s presence was “sufficient to constitute direct physical loss of or damage to property within the meaning” of the all-risk commercial property insurance policy. One section of the policy excludes “contamination, and any cost due to contamination, including the inability to use or occupy the property.” The policy also previously defines “contamination” as the presence of any foreign substance, including viruses. However, the policy also contains an “amendatory endorsement” which removes the word “virus” from the definition.

The amendment, entitled “Amendatory Endorsement – Louisiana,” states that the endorsement changes the policy. Though it specifies Louisiana, the plaintiffs maintain that the policy “makes clear that the body of the endorsement, not its title, modifies the scope” of the contamination exclusion. The plaintiff seeks a declaratory judgment establishing the parties’ rights, and alleges breach of contract and anticipatory breach claims.

Zurich’s Pending Motion to Dismiss

Zurich filed a motion to dismiss the complaint, alleging that the policy requires actual or imminent physical loss or damage to property. It alleges Lindenwood and others did not suffer by simply losing the use of the property. Zurich argues that the risk or presence of the virus is not capable of having a “direct physical effect” resulting in “property damage” as defined under Missouri law. This requires an “injury to property” or facts that establish the property was unusable or uninhabitable. Zurich asserts the policy’s contamination exclusion precludes all coverage of losses related to the actual presence of the virus. The policy also contains exclusions for any losses resulting from laws or rules restricting the use of the property.

As to the virus deletion endorsement, Zurich argues this was one of 31 state-specific amendatory endorsements only applicable to the named state. Zurich explains that states heavily regulate property insurance and impose requirements for policies within their state. As such, Zurich asserts these state-specific riders are needed to address state-by-state requirements. Zurich cites case law which establishes that each state’s endorsement must apply only to risks in that particular state. If each state’s endorsement were to apply to others, the policies would conflict with one another.

The Plaintiff’s Reply

In its opposition to the motion to dismiss, the plaintiff offered a counterargument. They assert that the complaint plausibly alleges—per the applicable standard of review for motions to dismiss—that the policy’s covered physical losses include those related to COVID-19. As to the virus deletion endorsement, Lindenwood stresses that Louisiana is only specified in the title. They assert this does not expressly limit the provision’s geographical scope, as other provisions do. According to Lindenwood, defining the scope of coverage by the title is in contradiction to insurance policy interpretation.

The success of Zurich’s motion to dismiss seems likely. As Zurich points out, courts have dismissed over 100 similar cases wherein the plaintiff seeks coverage for COVID-19-related losses under property insurance policies. This includes one before the current case’s judge. In previous cases, courts have found that COVID-19-related business losses do not constitute physical property loss. And this includes those losses suffered by colleges.

Across the county, limited operations continue on college campuses. The court’s holding here regarding state-specific virus deletion endorsements will certainly be of interest to similarly situated educational institutions.