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Law360 (July 2, 2021, 7:12 PM EDT ) A Houston law firm can't tap into coverage from its insurer for losses related to government closure orders during the COVID-19 pandemic, a federal judge has ruled, determining the firm hadn't shown it suffered any "direct physical loss of or damage to property."
The ruling from U.S. District Judge Vanessa D. Gilmore on Thursday brings an end to the lawsuit Kennard Law PC brought against National Fire Insurance Company of Hartford on June 18, 2020. U.S. Magistrate Judge Christina A. Bryan issued a recommendation on June 11 that Kennard's claims be dismissed with prejudice.
Judge Bryan noted that the insurer had cited to the court at least two dozen cases where courts within the Fifth Circuit and elsewhere addressed these exact types of claims and determined that "COVID-19 pandemic business losses are not the result of physical loss or damage," while Kennard had failed to cite any authority in support of its position.
"Plaintiff insists that this court is not bound by the rulings of other district courts but despite several opportunities to do so, has failed to explain that numerous decisions are wrong," Judge Bryan wrote.
But Judge Bryan also wrote in the memorandum that if, within 14 days, Kennard could present the court with additional facts that would show it suffered "direct, physical loss or damage" from COVID-19, she would consider revising her recommendation to dismiss without prejudice to allow a second amended complaint to be filed.
On June 25, Kennard filed objections to the recommendation arguing that the business income coverage was clearly triggered when its building was shut down and it was unable to access the property, leading to a suspension of business operations.
"According to the plain meanings and language of policy, the suspension of operations had to be necessary and caused by a direct physical loss of or damage to the property," Kennard told the court. "The cause of loss also had to be a covered risk of direct physical loss. Therefore, the risk that COVID-19 would be present in the air and on surfaces should be covered under the policy"
According to the lawsuit, Kennard's policy provides property and liability coverage for three locations, including its Houston office, and was effective from May 1, 2019, through May 1, 2020. Kennard filed a claim under the policy for business interruption losses related to COVID-19, and National Fire denied the claim, explaining the policy only covered "direct physical loss of or damage to property."
That prompted Kennard to file a putative class action lawsuit against the insurer, alleging breach of contract, breach of fiduciary duty, fraud, negligence, violations of the Texas Insurance Code and violations of the Texas Deceptive Trade Practices Act.
National Fire moved to dismiss the suit, arguing that Kennard had alleged only that a policy exists and that it had somehow breached it, without identifying "the specific provisions in the insurance policy that Defendant breached, and the alleged damages suffered," according to court documents. The insurer also argued that Kennard couldn't show the firm suffered any "direct physical loss of or damage to property."
The insurer removed the suit to federal court in July 2020, about one month after Kennard filed suit in Harris County District Court.
Alfonso Kennard Jr., who is representing his law firm, told Law360 on Friday that while most courts have sided with the insurance companies in these disputes, he's hopeful the tide may turn and plans to pursue an appeal in this case.
"We've always had an understanding that these cases are going to have to go through the appellate courts, that's just the nature of the beast," he said. "I don't think these insurance companies get to get off the hook when it's just so blatant."
Counsel for National Fire Insurance Company did not immediately respond to a message seeking comment Friday afternoon.
Kennard Law is represented by Alfonso Kennard Jr. and Cristabel Jimenez of Kennard Law PC.
National Fire Insurance Company of Hartford is represented by David H. Timmins and Joshua Grabel of Husch Blackwell LLP.
The case is Kennard Law PC v. National Fire Insurance Company of Hartford, case number 4:20-cv-02534, in the U.S. District Court for the Southern District of Texas, Houston Division.
--Editing by Ellen Johnson.
For a reprint of this article, please contact reprints@law360.com.
