The state high court said it would answer the questions of whether the existence of the virus that causes COVID-19 on a property or an infected person's presence around a property constituted a direct physical loss or damage, a precondition for coverage under commercial property insurance policies.
In January, U.S. District Judge Benita Y. Pearson refused to rule on whether Cincinnati Insurance Co. should pay for an Ohio audiology practice's business loss due to the pandemic and state-mandated closures. The judge said such "unresolved" questions of Ohio law belong to the Ohio Supreme Court to ensure uniformity of state law applications.
As "dozens, if not hundreds of cases" seeking pandemic-related coverage hit the Ohio court systems, "differing interpretations of Ohio contract law by different courts threaten to undermine the uniform application of that law to similarly situated litigants," Judge Pearson said at the time.
Since the beginning of the year, state high courts, including those of Pennsylvania, Florida, and New York, have been asked to certify similar COVID-19 related coverage questions but have not responded.
The Ohio Supreme Court's Wednesday decision to answer the question came after Hearing Innovations, the policyholder involved in the suit, asked the court to decline the certification in February, saying the issue was too broad and further discovery was needed.
The questions will be better decided after more factual findings on the physical and epidemiological composition of the virus, "its transmissibility, and the level of spread in the community," Hearing said in a February memorandum.
"Certification is simply unnecessary," it said. "If the Court is to take up a certified question, it should take [up] a question that would resolve whether structural alteration to the property is required to have a direct accidental physical loss or accidental physical damage under the policies at issue."
Hearing's request was filed a day after its insurer, Cincinnati, urged the state high court to certify the questions, maintaining that the court's weighing in would help insurers and policyholders and would lead to a more efficient resolution of the issue given the large number of suits regarding coverage for COVID-19 business interruptions.
The insurer has argued that no existing Ohio case law directly addresses the issue and that the court should address the legal meaning of insurance contract language at the center of the dispute. Cincinnati has contended that businesses' purely financial loss from being temporarily unable to use their properties does not constitute a direct physical loss, which requires a structural change in a property.
According to the suit, Hearing was forced to cease operations last March and resumed some operations in May. The audiology practice said it had suffered significant income loss due to business interruptions. Hearing held an all-risk policy with Cincinnati that did not contain a virus or pandemic exclusion.
Hearing sued Cincinnati in June, seeking to certify a nationwide class of policyholders that have also been denied coverage for losses related to the pandemic.
In February, eight policyholders, including a law firm, restaurants, optical filter shops, a gallery, and a beer garden, requested that the Third Circuit ask the Pennsylvania Supreme Court to certify whether the pandemic causes "physical loss" covered in insurance policies. In the same month SA Palm Beach, a Florida restaurant, urged the Eleventh Circuit to certify to the Florida Supreme Court whether an "all-risk" business interruption policy requires actual "physical damage" and whether "direct physical loss" can mean more than just structural loss of property.
Earlier this month, Manhattan art gallery Guy Hepner asked the Second Circuit to certify to the New York Court of Appeals a similar coverage question relating to the pandemic and government shutdown orders.
Representatives for the parties could not be immediately reached for comment on Wednesday.
Hearing is represented by Yechiel Michael Twersky of Berger Montague and Nicholas DiCello of Spangenberg Shibley & Liber.
Cincinnati is represented by Daniel M. Kavouras, Michael K. Farrell and Rodger L. Eckelberry of BakerHostetler; and Daniel G. Litchfield of Litchfield Cavo.
The case is Neuro-Communication Services Inc. v. Cincinnati Insurance Co. et al., case number 2021-0130, in the Supreme Court of Ohio.
--Editing by Peter Rozovsky.
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