Ninth Circuit Reverses Denial of Motion to Amend on COVID-19 Claim

    The Ninth Circuit reversed the District Court's denial of the insured's motion to amend a complaint asserting loss due to COVID-19. Worth Hotels, Inc. v. Fireman's Fund Ins. Co., 2024 U.S. App. LEXIS 8484 (9th Cir. April 9, 2024).

    The Hotels sought coverage for business losses incurred because of the risk or presence of COVID-19. The District Court granted Fireman's Fund's motion to dismiss and denied the Hotels' motion to amend.

    The Washington Supreme Court interpreted "direct physical loss" to require that the property had been physically destroyed or that one was deprived of the property because it was no longer in their physical possession. Further, to recover under a property insurance policy for physical loss of or damage to the property, something physical had to happen to the property. 

      Here, the Hotels failed to show a physical loss because they continued to use their properties while the virus or the risk was present. Therefore, the District Court was correct on this point.

    The Crisis Event provision of the policy, however, did not contain language about "direct physical loss or damage." The provision required a "necessary suspension" to trigger coverage. A "necessary suspension" had to result from a "necessary closure of the covered premises." The District Court determined that the Hotels could not sufficiently allege they suffered a necessary closure or suspension because they offered small take-out menus from selected locations during shortened hours. Given the lack of binding precedent on this question, the Ninth Circuit could not determine that no further allegations could cure the defects in the Crisis Event claim. Therefore, the District Court's denial of leave to amend the Crisis Event claim was reversed.