The Las Vegas-based Levy Ad Group and two affiliated organizations said its property insurance policy with Federal Insurance Co. did not require that its property be structurally or physically altered for coverage. The agency said that it was entitled to coverage because access to its property was prohibited under government orders.
At the heart of the case, like many of the pandemic coverage suits making their way through state and federal courts, was the meaning of direct physical loss or damage. A requirement for coverage in many "all-risk" policies, Levy contended that those terms were ambiguous in its policy and further litigation was needed to establish a meaning.
"[The Levy group] should not be victimized twice — first, by [Federal's] failure to make its words and intentions clear; and second, by the district court's error when trying to divine the meaning of [Federal's] uncertain words and phrases," the agency said.
It added that the Nevada district court prematurely dismissed its suit, in violation of "virtually universal" contract construction rules that require insurance disputes to be solved in a policyholder's favor when there is a lack of clarity in a policy.
"Here, the striking lack of clarity in policy language is a circumstance that is strictly of [Federal's] making," Levy wrote in a 34-page brief to the appeals court.
In dismissing the suit in February, however, U.S. District Judge Jennifer A. Dorsey described the terms of the policy as "clear," and affirmed that it is normally the case in Nevada for a court to interpret insurance contract terms.
Judge Dorsey, noting the vast number of decisions favoring insurance companies in pandemic disputes, also said Nevada Supreme Court and Ninth Circuit decisions have generally hewed to a reading of direct physical loss or damage that involves some type of structural change or alteration to a property, resulting in a change to its functionality.
Federal, in its bid to toss the case last June, took a sharp tack, saying "the exigencies and engendered sympathies of the current crisis provide no basis to discard contractual language and short-circuit the judicial process."
To adequately assert coverage under the policy's civil authority positions, Federal argued, Levy would have had to show that it sustained physical loss or damage. In her order dismissing the suit, Judge Dorsey agreed, saying economic losses incurred as a result of Nevada Gov. Steve Sisolak's pandemic orders could not be covered.
Levy first submitted its request for coverage in March last year. Frustrated with the pace of the claims investigation, the agency sued Federal a little over a month later, according to court documents. It alleged breach of contract and bad-faith practices.
The agency becomes one of the latest businesses to urge the Ninth Circuit to revive its pandemic coverage suit. Earlier this week, the operators of 23 U.S. strip clubs asked for relief, and last month, it was the owner of three art galleries in California and Nevada.
Representatives for the parties in Friday's matter did not immediately respond to requests for comment.
Levy is represented by Bradley L. Booke of the Law Offices of Bradley L. Booke.
Federal is represented by Richard B. Goetz, Jonathan Hacker and Jeremy Girton of O'Melveny & Myers LLP.
The case is Levy Ad Group Inc. et al. v. Federal Insurance Co., case number 21-15413, in the U.S. Court of Appeals for the Ninth Circuit.
--Additional reporting by Lauren Berg. Editing by Leah Bennett.
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