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Law360 (August 26, 2020, 5:30 PM EDT ) A shoe company urged an Alabama federal judge to reject Auto-Owners Insurance Co.'s bid to toss its suit seeking COVID-19 loss coverage, arguing that no Alabama court has held that physical damage on a property requires physical alteration.
Wagner Shoes LLC said Tuesday that its policy is "silent" on the definition of direct physical loss or damage, and Alabama courts have routinely held that undefined or ambiguous terms in an insurance policy must be read in favor of the policyholder. So Auto-Owners cannot deny coverage by asserting that Wagner Shoes incurred no physical damage.
Wagner of Tuscaloosa, Alabama, owns retail stores to sell shoes through brands including Asics, Michael Kors, and Under Armour, according to the suit. The company holds a business owner policy with Auto-Owner, and sued the insurer in April, seeking a declaration that its claimed property damage from COVID-19 should be covered.
Auto-Owner has argued that the company experienced no physical loss or damage, that there is no allegation that COVID-19 presented on Wanger's properties, and that "direct physical loss does not mean business losses occasioned by civil ordinance," according to court records.
The carrier has also maintained that even if the novel coronavirus was on Wagner's property, it caused no harm or physical injury because it can be cleaned off. The insurer contended that Alabama case law shows that physical damage requires an alteration on tangible property, according to court filings.
In Tuesday's response, Wanger said that although Alabama law does "construe direct physical loss as more than economic loss and disallows the same," no Alabama court has held that physical loss or physical damage needs alteration or change of covered property.
Auto-Owners has "artfully taken lawful case statements and tacked on their own finding Alabama requires a physical, structural, tangible alteration to constitute property damage when there is no Alabama case that says any such thing," Wagner said.
The shoe company continued that while lost revenue is economic loss, "it is not coverage conditioned on any requirement of a physical alteration to property. As long as the business interruption occurs from a covered cause of loss, coverage is found and applies."
According to the response, Auto-Owners denied Wagner's insurance claim on the day Wagner received a proof of loss from the insurer. The shoe company alleged that the carrier breached its obligation to investigate and evaluate claims before making a decision on coverage as required by the policy.
Counsel for the parties could not be immediately reached for comment.
Wagner is represented by R. Matt Glover of Prince Glover & Hayes PC and P. Ted Colquett of Colquett Law LLC.
Auto-Owner is represented by Forrest S. Latta, Katherine Edwards West, Robert S. W. Given, and S. Greg Burge of Burr & Forman LLP.
--Editing by Alyssa Miller.
For a reprint of this article, please contact reprints@law360.com.
