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Archive for August, 2020

First Decisions on Application of Insuring Agreement to Business Interruption Claims During COVID-19 Pandemic

Posted on: August 28th, 2020

By: David Slocum

In the months since the COVID-19 pandemic began, thousands of claims and lawsuits have been initiated by businessowners seeking coverage for alleged property damage and business losses based on the impact to their businesses. From restaurant owners, to magazine publishers, to minor league baseball teams, a wide range of businesses argue business interruption insurance policies should cover business losses following government-ordered lockdowns and restrictions on large gatherings. Businessowners filing such lawsuits generally contend their businesses have been interrupted through no fault of their own, and that the business interruption insurance should cover their losses.  

Lawsuits filed by businessowner policyholders around the country generally argue their property has been impaired and that the loss of functionality resulting from governmental lockdown orders (as distinct from the virus itself) should qualify as “direct physical loss of or damage to” the property.

In one of the first judicial rulings on the issue, Circuit Court Judge Joyce Draganchuk of Ingham County, Michigan recently held business interruption insurance does not provide coverage for such losses. Nick Gavrilides, owner of the Soup Spoon Cafe in Lansing, Michigan had sued his insurer, Michigan Insurance Company, a subsidiary of Donegal Group Inc., which had denied Mr. Gavrilides’ $650,000.00 business interruption claim.  The policy at issue contained a provision requiring “direct physical loss of or damage to the [insured’s] property” as one of the elements necessary to establish business interruption coverage. The policy also contained an exclusion providing the insurer “will not pay for loss or damage caused by or resulting from any virus, bacterium, illness or disease.”

Michigan Insurance argued business interruption coverage under the policy requires a physically destructive event that alters the structural integrity of the policyholder’s property. Mr. Gavrilides argued that the Michigan governor’s stay-at-home order interfered with the use of his property and that the extraordinary circumstances of the pandemic call for new interpretations of what “direct physical damage” means for businessowners. 

Ruling from the bench during a virtual hearing, the judge sided with the insurer and held that the plain language of the policy requires tangible physical damage to property in order for business interruption coverage to apply. The judge explained:

[I]t is clear from the policy … that only direct physical loss is covered. Under their common meanings and under federal case law … direct physical loss of or damage to the property has to be something with material existence, something that is tangible, … something that alters the physical integrity of the property. The Complaint here does not allege any physical loss of or damage to the property.

The judge stated that because COVID-19 had not physically affected the structure of the property, there was no point allowing Mr. Gavrilides to file an amended complaint. Mr. Gavrilides has filed an appeal. Because the insuring agreement did not apply in the first instance, the court never reached the question of whether the “virus, bacterium, illness or disease” exclusion applied.

The ruling in May of this year in Social Life Magazine Inc. v Sentinel Insurance Co., Ltd. also held there is no coverage for claimed business losses without actual tangible impact to the physical property.  In Social Life Magazine a federal judge in New York denied a magazine publisher’s motion seeking a declaratory judgment that business interruption insurance should cover income lost due to a government-ordered COVID-19 lockdown. The policyholder has appealed. 

Decisions on COVID-19 claims are continuing, and the stakes are high for businessowners and insurers. The outcome in any individual case should, of course, depend on the specific language of the applicable insurance policy and the evidence presented. If, as in the Gavrilides and Social Life Magazine decisions, the courts construe the policy language as written, the mere loss of use of a businessowner’s property is not sufficient to show the insuring agreement applies. 

If you have questions or would like more information, please contact David Slocum at [email protected].

Additional Information:

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients. Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments. For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**

Pennsylvania Opens Flood Gates to Unlimited Video Footage Discovery Requests

Posted on: August 28th, 2020

By: Erin Lamb

The Pennsylvania Supreme Court declined to review a Superior Court opinion issued in the case of Marshall v. Brown’s IA, LLC, that found that Plaintiff was entitled to a new trial in a case where the trial judge declined to give an adverse inference jury instruction when the defendant produced only portions of the video surveillance requested by Plaintiff.

Approximately two weeks after Plaintiff’s slip and fall, her counsel issued a preservation of evidence letter instructing the grocery store to retain surveillance video of the accident and area in question for 6 hours prior to the accident, and 3 hours after the accident. Instead, the grocery store preserved only 37 minutes of video prior to the fall, and 20 minutes after the fall. The rest of the footage was overwritten automatically after 30 days. The general manager of the store testified that the grocery store’s “rule of thumb” was to keep only 20 minutes of footage before and after such incidents. Plaintiff’s counsel demanded an adverse inference charge and the Court declined to give one, finding no bad faith and that the mere request for more footage did not make it relevant evidence. The Superior Court found the trial court’s reasoning to be an unreasonably limited understanding of relevance, and a misapplication of the Pennsylvania case law regarding spoliation, which does not require bad faith.

This decision is yet another in a long line of Pennsylvania decisions that make it clear that the duty to preserve evidence in Pennsylvania is very broad, and that the Pennsylvania appellate courts see the only cure to spoliation allegations as being the adverse inference jury instruction provided by the Model Jury Instructions. An adverse inference charge is extremely difficult to overcome in any liability case.

Practically, the ruling may lead to broad requests for video footage of such incidents. Business owners must have a clear, articulated video retention policy, and an understanding of why the policy exists and how it is followed, to be able to argue that (1) such requests are an onerous and unduly burdensome, and (2) to avoid an adverse inference charge if footage was deleted on an automatic schedule. 

If you have questions or would like more information, please contact Erin Lamb at [email protected].

Bystander Claims in California: How Close is Close Enough?

Posted on: August 24th, 2020

By: Emily Williams

Witnessing the occurrence of a serious injury or death to a friend or a loved one is likely to cause emotional distress, even absent any physical injury to the bystander. However, in California, in order to have a valid claim for negligent inflection of emotional distress (NIED), there must be a sufficiently close relationship between the bystander and the victim.

Valid NIED bystander claims in California are commonly referred to as Dillon v. Legg claims. In Dillon v. Legg, the California Supreme Court reversed a lower court dismissal of a bystander’s claim, where a mother witnessed the death of her child. See generally, Dillon v. Legg, 68 Cal. 2d 728 (1968). In so doing, the Dillon court held that courts should take into account whether the victim and bystander were “closely related, as contrasted with an absence of any relationship or the presence of only a distant relationship.” See id. at 740-741. Other factors to be taken into account included the bystander’s location and whether the distress resulted from “sensory and contemporaneous observance of the accident.” See id.

The Dillon court did not explain in much detail the definition of “closely related.” As such, courts were largely on their own to interpret the language and apply it to different relations. E.g., see Trapp v. Schuyler Constr., 149 Cal. App. 3d 1140, 1143 (1983) (first cousins who did not live together could not recover); See also Kriventsov v. San Rafael Taxicabs, 186 Cal. App. 3d 1445, 1149-1150 (1986) (uncle living in same household as nephew could recover); See also Elden v. Sheldon 46 Cal. 3d 267, 277 (1988) (unmarried cohabitant/de facto spouse could not recover).

Then, in Thing v. La Chusa, the California Supreme Court again attempted to clarify what type of relationship is close enough, explaining that “absent exceptional circumstances, recovery should be limited to relatives residing in the same household, or parents, siblings, children, and grandparents of the victim.” Thing v. La Chusa, 48 Cal. 3d 644, 668 n.10 (1989).  Thing v. La Chusa still left open the issue of whether “exceptional circumstances” could allow recovery for non-relatives. A California Court of Appeals case, interpreting Thing v. La Chusa, held that theexceptional circumstanceslanguage does not permit recovery for non-relatives. Rodriguez v. Kirchhoefel, 128 Cal. App. 4th 427, 433-34 (2005); See also King v. United States, 2016 U.S. Dist. LEXIS 3828, *28 (C.D. Cal. January 11, 2016).

Accordingly, California courts generally define “closely related” in a narrow way, with credence given to the traditional family. The policy behind this approach may have been prudent at one point in time. However, in today’s world, the traditional family unit is becoming less common. More and more couples cohabitate but chose not to marry. And, the distinction between family and friends is shrinking. Therefore, as much as the courts attempt to create a one size fits all rule, life – and the law – is just not that simple.

If you have questions or would like more information, please contact Emily Williams at [email protected].

E-tailers Beware: California Court of Appeal Rules that Amazon Can be Sued for Products Sold by Third-Party Vendors on its Website

Posted on: August 21st, 2020

By: Anastasia Osbrink

A California Court of Appeal issued a ruling on August 13, 2020, holding that Amazon can be held strictly liable for products sold on its website by third-party sellers through its “Fulfilled by Amazon” (“FBA”) program. (Bolger v. Amazon.com, LLC (Aug. 13, 2020, No. D075738) ___Cal.App.5th___ [2020 Cal. App. LEXIS 761].)This ruling now opens the door for consumers to sue Amazon for any defective products sold on its website regardless of whether those products are directly sold by Amazon.

The ruling arises out of a lawsuit filed by a woman, Angela Bolger, who purchased a computer battery through Amazon that was sold through third-party vendor Lenoge Technology (HK) Ltd., fictitiously named “E-Life” on Amazon (“Lenoge”). Bolger alleges that the battery exploded several months later, causing her severe burns. Bolger sued several defendants, including Lenoge and Amazon, alleging strict products liability, negligent products liability, breach of implied warranty, breach of express warranty, and “negligence/negligent undertaking.” Lenoge did not appear and default judgment was entered against it. Amazon moved for summary judgment, arguing that a theory of strict liability and other related torts could not apply to it because it did not distribute, manufacture, or sell the product in question. A San Diego Superior Court granted the motion for summary judgment, and Bolger appealed.

Now the Court of Appeal has overruled the Superior Court, holding that Amazon “placed itself between Lenoge and Bolger in the chain of distribution” by accepting possession of the battery, storing it, promoting its website, listing the battery for sale, receiving Bolger’s payment, and shipping the battery to Bolger. Amazon inserted itself into the relationship between Lenoge and Bolger and set the terms of its own relationship with Lenoge, including demanding indemnification and fees. The court held that whether Amazon is labeled as a “retailer,” “distributor,” or “facilitator,” “it was pivotal in bringing the product here to the consumer,” and therefore, can be held strictly liable for any defect with the product. (Id. at *3.)

This holding follows a similar ruling in Pennsylvania, which was appealed and is now pending. (Oberdorf v. Amazon.com Inc. (3d Cir. June 2, 2020, No. 18-1041) 2020 U.S. App. LEXIS 17974.) Should these rulings remain in effect, they likely will change how websites offering products through third-party sellers approach their roles in the chain of distribution and assess future potential liability. It may – and should – make online retailers such as Amazon more cautious about offering products that they have not vetted or tested.

If you have questions or would like more information, please contact Anastasia Osbrink at [email protected].

9th Circuit Holds Amazon’s Last-Mile Delivery Drivers are Exempt from Arbitration

Posted on: August 21st, 2020

By: Josue Aparicio[1]

On Wednesday, the Ninth Circuit Court of Appeals held that Amazon’s delivery drivers are exempt from the Federal Arbitration Act (“FAA”) because they are transportation workers “engaged in interstate commerce.”

The decision is a huge loss for e-commerce giant, Amazon.com, who is facing several class action lawsuits arising from its “Amazon Flex” program; a delivery service platform in which Amazon contracts with a fleet of on-demand, gig economy workers to perform “last mile” deliveries of Amazon packages. Like many gig workers, Amazon’s so-called “flex drivers” are classified as independent contractors, perform deliveries using their personal vehicles, and follow assigned delivery routes provided by the Amazon Flex smartphone application.

In a 2-1 decision, a divided Ninth Circuit panel affirmed the lower court’s ruling that denied Amazon’s motion to compel arbitration of its flex drivers’ wage and hour class action.[2] Contrary to Amazon’s contentions, the court found the flex drivers did not have to physically cross state lines to be “engaged in interstate commerce” or to fall within the FAA’s so-called “transportation workers” exemption. In the court’s view, since Amazon is “one of the world’s largest online retailers” in the business of shipping goods worldwide, its delivery drivers are “engaged in interstate commerce” through their participation in delivering packages that travel through the “stream of interstate commerce.”

Rittmann v. Amazon.Com, Inc.

In 2016, flex drivers filed a nationwide class and collective action against Amazon.com, alleging the company misclassified them as independent contractors thereby denying them the benefits and protections of state and federal labor laws.

In response, Amazon moved to compel arbitration of the plaintiffs’ individual claims based on an arbitration provision within the terms of service of the Amazon Flex mobile app, which flex drivers must agree to before they can sign up for the Amazon Flex program. Importantly, the terms of service expressly state that the agreement is governed by the laws of the state of Washington, except for the arbitration provision which is governed exclusively by the Federal Arbitration Act (“FAA”).

In April 2019, Judge Coughenour of the U.S. Federal District Court for the Western District of Washington denied Amazon’s motion and concluded that flex drivers fall within the “transportation worker” exemption to the FAA because they deliver goods shipped from across the country.[3] Consequently, since the FAA did not apply and the parties expressly contracted that Washington law could not apply, the district court invalidated the arbitration agreement because it was unclear what law would apply or if the parties even intended to arbitrate disputes in the event the FAA did not apply. Amazon appealed the ruling to the Ninth Circuit.

The Ninth Circuit’s Interpretation of the Transportation Worker Exemption

While the FAA applies broadly to arbitration agreements and reflects a liberal policy favoring arbitration, Section 1 of the statute renders its enforcement provisions inapplicable to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”[4] The U.S. Supreme Court in its 2001 landmark decision, Circuit City Stores, Inc. v. Adams, construed the language in Section 1 narrowly to apply exclusively to “transportation workers.”[5] However, the Court never defined the term “transportation worker,” and since then, state and federal courts have struggled to determine which “class of workers” fall within the ambit of the exemption.

On appeal, Amazon challenged the district court’s ruling by asserting that its flex drivers are exclusively “engaged in local, intrastate activities” because they do not cross state lines when performing deliveries. According to Amazon, a worker must physically cross state lines in the course of making deliveries to be “engaged in foreign or interstate commerce” for the exemption to apply.

The Ninth Circuit majority disagreed and held that crossing state lines is not a necessary condition for the application of the transportation worker exemption. In the court’s view, an interstate transaction between Amazon and a customer does not conclude until the package reaches its intended destination. Accordingly, when an Amazon package travels interstate and is held locally in an Amazon warehouse, the interstate journey of the package does not “come to rest” until it is delivered to the intended recipient. Therefore, even though flex drivers only pick up packages from local Amazon warehouses and deliver them “purely intrastate” to a customer’s home, the driver is “engaged in interstate commerce” by performing the last leg or “last mile” of the interstate journey. Based on this reasoning, the Ninth Circuit held that flex drivers are exempt from the FAA under the transportation worker exemption.

In affirming the lower court’s ruling, the Ninth Circuit also agreed that since the FAA does not apply and the contract terms state Washington law cannot apply to the arbitration provision, there is no valid arbitration agreement between the parties.

However, in a 36-page dissenting opinion, Judge Daniel Bress criticized the majority opinion for creating further uncertainty around the interpretation of the “transportation worker” exemption, “as well as inequities among delivery workers who are similarly situated.” In his view, to be “engaged in interstate commerce” the delivery driver “must belong to a ‘class of workers’ that crosses state lines in the course of making deliveries,” otherwise what should be a narrow exemption “could broadly include anyone who delivers goods between any two locations.”

This ruling comes just a month after the First Circuit Court of Appeals also rejected Amazon’s motion to compel arbitration in a lawsuit involving a putative class of flex drivers from Massachusetts who similarly allege Amazon misclassified them as independent contractors.[6]

Employer Takeaways

Recent federal appellate court decisions have certainly expanded the “class of workers” exempt from the FAA. In addition to the Ninth and First Circuit’s inclusion of “last-mile” delivery drivers, the Third Circuit recently expanded the exemption to include workers who transport passengers, such as ride sharing companies, Uber and Lyft.[7]

On the other hand, the Ninth Circuit’s Rittmann decision made clear that individuals delivering food or meals for companies like DoorDash, GrubHub and Postmates are not “engaged in interstate commerce.” In the court’s view, there is an important distinction between making local deliveries of goods that have arrived at a local restaurant and whose continuous interstate journey is broken, as opposed to the packages delivered by Amazon’s flex drivers, which are often shipped from out of state and do not end their interstate journey until they reach the intended consumer.

If you have questions or would like more information, please contact Josue Aparicio at [email protected].


[1] Josue Aparicio is an Attorney with Freeman, Mathis & Gary LLP who specializes in worker misclassification claims under California law. (https://www.fmglaw.com/attorney_bio.php?id=408)

[2] Rittmann v. Amazon.com, Inc. (9th Cir. 2020), Case No. 19-35381.

[3] Rittmann v. Amazon.com, Inc. (W.D.Wash. 2019) 383 F. Supp. 3d 1196.

[4] 9 U.S.C. § 1 (emphasis added).

[5] Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105, 118-119.

[6] Waithaka v. Amazon.com, Inc. (1st Cir. 2020) 966 F.3d 10.

[7] Singh v. Uber Techs., Inc. (3d Cir. 2019) 939 F.3d 210, 219; Cunningham v. Lyft, Inc. (D.Mass. March 27, 2020) Case No. 1:19-cv-11974.