Mudpie Inc. v. TravelersCasualty Insurance Co. of America

1. 8/9/2021 9th Circ. Poised To Weigh COVID-19 Coverage Battles - Law360
https://www.law360.com/insurance/articles/1409142/9th-circ-poised-to-weigh-covid-19-coverage-battles 1/11
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2. 8/9/2021 9th Circ. Poised To Weigh COVID-19 Coverage Battles - Law360
https://www.law360.com/insurance/articles/1409142/9th-circ-poised-to-weigh-covid-19-coverage-battles 2/11
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Analysis
9th Circ. Poised To Weigh COVID-19
Coverage Battles
By Shawn Rice
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By Shawn Rice

3. 8/9/2021 9th Circ. Poised To Weigh COVID-19 Coverage Battles - Law360
https://www.law360.com/insurance/articles/1409142/9th-circ-poised-to-weigh-covid-19-coverage-battles 3/11
Law360 (August 6, 2021, 6:39 PM EDT) -- The Ninth Circuit will hear arguments Wednesday from
policyholders and insurers in three suits over whether business-interruption coverage extends to pandemic-
related losses, in what could be a preview of the many cases pending before federal appellate and trial courts.
The Ninth Circuit is set to hear three appeals in business-interruption
suits dealing with a wide range of insurance issues related to pandemic-
related losses. (AP Photo/David Zalubowski)
More than a year into the pandemic, these suits have reached the federal appellate courts, with the Ninth Circuit
leading with 61 appeals, according to the most recent data from the University of Pennsylvania's COVID
Coverage Litigation Tracker. The legal community is now waiting to see how the Ninth Circuit will decide these
cases.
Here, both insurer- and policyholder-side experts break down the cases ahead of the oral arguments in
Chattanooga Professional Baseball LLC et al. v. National Casualty Co. et al., Selane Products Inc. v. Continental
Casualty Co. and Mudpie Inc. v. Travelers Casualty Insurance Co. of America. In all three of these cases,
policyholders lost their coverage bids.
What's at Stake
The financial health of thousands of businesses throughout the United States, according to experts, is at stake in
these three oral arguments, as the Ninth Circuit is considered to be an influential jurisdiction.
When governments began issuing shutdown orders last year to curb the COVID-19 pandemic, businesses were
forced to temporarily close. After insurance companies denied their claims, businesses began filing suit in both
federal and state courts.
Meanwhile, insurers have pushed for government programs to cover the losses, rather than focusing on quickly

4. 8/9/2021 9th Circ. Poised To Weigh COVID-19 Coverage Battles - Law360
https://www.law360.com/insurance/articles/1409142/9th-circ-poised-to-weigh-covid-19-coverage-battles 4/11
paying policyholders' claims, according to Amy Bach, executive director of the national consumer group United
Policyholders. This is similar to their response after other catastrophic events like 9/11 and Hurricane Katrina,
she said.
"The ink had barely dried on claim submissions when the industry ran to Congress," Bach said. "It is making a
lot of people and businesses lose confidence in the insurance industry."
Over 18 months into the pandemic, hundreds of federal and state courts have weighed in on coronavirus
insurance cases, but experts said it is time for guidance from the appellate courts. The turning point will come
when appellate courts issue rulings deciding larger groups of cases and common issues, according to experts.
"These Ninth Circuit cases tempt the court to pry open the concept of commercial property coverage to include
regulatory restrictions, which would change the entire nature of this form of insurance," said David Buishas of
BatesCarey LLP, who represents insurance companies.
How We Got Here
The Ninth Circuit's oral arguments come more than a month after the Eighth Circuit issued the first appellate-
level ruling in a pandemic business-interruption suit. In July, a three-judge panel ruled that an Iowa dental
clinic's losses due to government-imposed restrictions during the pandemic weren't covered by its policy.
The upcoming oral argument hearings — involving a group of minor league baseball teams, a dental appliance
maker and a children's clothing retailer. — present a broad spectrum of issues, according to experts, and should
give the Ninth Circuit an opportunity to provide clarity on a number of questions.
While insurance is regulated by the states and insurance law is made in state courts, federal courts have played a
leading role in COVID-19 insurance litigation, according to policyholder-side experts. Particularly, these experts
expressed concern over the federal courts' "aggressive" role in tossing out suits before discovery.
But insurer-side experts said policyholders across California have been unsuccessfully trying to convince trial
courts that the virus caused unique property changes within their premises.
"Unable to legitimately allege actual changes to their physical property, the policyholders now wish to change
the nature of the coverage itself, which they need a respected intermediate court such as the Ninth Circuit to buy
into," Elisabeth Ross of BatesCarey LLP, who represents insurers, told Law360.
The Policyholders' Stance
The Ninth Circuit appeals offer different factual issues and policy language. For example, the appeals in
Chattanooga Pro Baseball and Mudpie address policies containing a standard virus exclusion.
The baseball teams argue their insurer is barred from relying on that exclusion based on statements made to
regulators in 2006 when it was approved. In essence, the teams' position is that insurers misled regulators when
they stated that the exclusion wouldn't significantly narrow coverage.
What the teams have going for them is the fact that the regulatory estoppel argument is a fact-intensive issue,
said Micah Skidmore of Haynes and Boone LLP, who represents policyholders, which will be hard for a court to
dismiss or decide as a matter of law.
If the Ninth Circuit addresses whether the 2006 form of the virus exclusion narrowed coverage or left its scope
intact, David Wood of Barnes & Thornburg LLP said, insurers might think twice before representing to
regulators that a new exclusion doesn't affect the scope of coverage. Wood, who represents policyholders, said
he's interested in how the Ninth Circuit rules on concurrent causation in the Chattanooga case, given the policies
don't contain an anti-concurrent causation provision.

5. 8/9/2021 9th Circ. Poised To Weigh COVID-19 Coverage Battles - Law360
https://www.law360.com/insurance/articles/1409142/9th-circ-poised-to-weigh-covid-19-coverage-battles 5/11
Without mentioning concurrent causation, the district court ruled the excluded cause — the coronavirus — was
the root cause, since losses from the canceled 2020 baseball season wouldn't have happened if not for the
pandemic. If the Ninth Circuit affirms, Wood said, it would imply an anti-concurrent causation exclusion into the
policies.
"This would represent a sharp turn by the court away from protecting the rights of policyholders against insurers
bent upon construing their coverage obligations narrowly," he said.
In Mudpie, the loss was allegedly caused by government shutdown orders and not the presence of the virus. The
fact that the lower court agreed that physical alteration to property isn't required for coverage bodes well for the
policyholder, according to Skidmore. The retailer's argument should prevail because the district court's decision
depends on adding language to the policy, as there isn't any express requirement for permanent damage or an
intervening physical force in the policy, he said.
The strength of Selane's case, according to Skidmore, is that the microbe exclusion in its policy proves the
company's point, as insurers wouldn't need exclusions like it or the virus exclusion if microscopic particles like a
virus didn't cause property damage.
"You are trying to exclude damage that the insurer alleges isn't there to begin with," he said.
United Policyholders' Bach said there are 40 years of case law in support of the position that invisible things can
cause property damage. And there's a lot of variation in how insurers wrote policies and defined their
obligations, she said.
"There's no way insurers should be off the hook for many of these losses," Bach said. "It feels like courts are
rendering outcome-oriented decisions instead of following decades of established case law."
The Insurers' Stance
Insurers have maintained that their policies only cover actual physical loss of or damage to property. For
example, actual physical loss could be the total destruction of property by fire or tornado, while damage would
be the partial alteration of its structural integrity by fire or tornado, according to insurers.
Mudpie asked the Ninth Circuit to answer if an insured's inability to use its storefront due to the shutdown orders
is a physical loss of or damage to property. The vast majority of courts, including the Eighth Circuit, have held
that the mere loss of use of property isn't a physical loss.
The insurer's strength is the court's reading of the policy, according to Buishas of BatesCarey, to recognize that
an insured and insurer work together to identify, document, repair and replace a property to get a business up and
running.
"Then it becomes clear that income losses due to COVID-19 stay-at-home orders are simply not intended to be
covered," he said.
In Selane, the Ninth Circuit is presented with whether the presence of the coronavirus caused physical alteration
to property. Ross of BatesCarey said she expects the appellate court to recognize that "countless viruses,
including the flu, have been known to be ubiquitous within a community, and yet their existence has never been
believed to cause a demonstrable, physical alteration to property."
Claire Howard, senior vice president and general counsel at the American Property Casualty Insurance
Association, said in an emailed statement that these policies aren't intended to cover diseases or pandemic-
related losses, as the majority of insurers didn't price and policyholders didn't pay for such coverage.

6. 8/9/2021 9th Circ. Poised To Weigh COVID-19 Coverage Battles - Law360
https://www.law360.com/insurance/articles/1409142/9th-circ-poised-to-weigh-covid-19-coverage-battles 6/11
If the suits retroactively force coverage of COVID-19 losses not in the policies, Howard said, it would weaken
the insurance industry's ability to pay claims on existing policies.
"Only the federal government can be the financial bridge for a crisis of this scale, proportion, and duration," she
said.
Overall, policyholders face a challenging hurdle at the Ninth Circuit, as courts have overwhelmingly granted
insurers' motions to dismiss in federal business-interruption suits. While federal courts aren't known for drama,
according to Skidmore of Haynes and Boone, it will take a "dramatic statement" from the Ninth Circuit to
overturn these three district court rulings to favor the insureds.
The cases are Chattanooga Professional Baseball LLC et al. v. National Casualty Co. et al., case number 20-
17422; Selane Products Inc. v. Continental Casualty Co., case number 21-55123; and Mudpie Inc. v. Travelers
Casualty Insurance Co. of America, case number 20-16858, all in the U.S. Court of Appeals for the Ninth
Circuit.
--Editing by Breda Lund.
For a reprint of this article, please contact reprints@law360.com.
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Case Information
Case Title
Mudpie, Inc. v. Travelers Casualty Insurance
Mudpie
Case Number
20-16858
Court
Appellate - 9th Circuit
Nature of Suit
4110 Insurance
Date Filed
September 24, 2020
Case Title
Chattanooga Pro Baseball, et al v. National Casualty Company, et al
Case Number
20-17422
Court
Appellate - 9th Circuit
Nature of Suit
4110 Insurance
Date Filed
December 16, 2020

9. 8/9/2021 9th Circ. Poised To Weigh COVID-19 Coverage Battles - Law360
https://www.law360.com/insurance/articles/1409142/9th-circ-poised-to-weigh-covid-19-coverage-battles 9/11
Case Title
Selane Products, Inc. v. Continental Casualty Company
Case Number
21-55123
Court
Appellate - 9th Circuit
Nature of Suit
4110 Insurance
Date Filed
February 16, 2021
Law Firms
Barnes & Thornburg
BatesCarey LLP
Haynes & Boone
Companies
American Property Casualty Insurance Association
CNA Financial Corp.
Government Agencies
U.S. Court of Appeals for the Ninth Circuit
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10. 8/9/2021 9th Circ. Poised To Weigh COVID-19 Coverage Battles - Law360
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