Texas Judge Dismisses Complaint Claiming Insurance Co. Breached Contract by Denying COVID-19 Losses

Judge Sidney A. Fitzwater of the Northern District of Texas on Tuesday dismissed a complaint by Minneapolis-based dentist Christie Jo Berkseth-Rojas against Aspen American Insurance Co. that claimed Aspen denied her dental practice business interruption coverage for alleged losses because of the COVID-19 pandemic, while granting Berkseth-Rojas leave to file a second amended complaint.

Berkseth-Rojas bought a commercial property insurance policy from Aspen to insure her practice for losses she faced between Dec. 6, 2019, and Dec. 6, 2020. She alleged that the Minnesota executive order suspending nonessential or elective surgeries and procedures, including nonessential or elective dental care, along with other state orders, “caused her to lose practice income and incur extra expenses covered by the Policy,” the court explained. Aspen denied her claim for these alleged extra expenses on March 27, 2020.

Berkseth-Rojas claimed Aspen breached its contract and sought a declaration that her policy should cover her alleged losses, arguing they are covered under various provisions of the policy. “Because of the spread or presence of COVID-19, the air in Plaintiff’s property has become unsafe, necessitating repairs such as the installation of a sneeze-guard plexiglass shield at the reception,” according to her first amended complaint.

Aspen moved to dismiss for failure to state a claim upon which relief can be granted, arguing that the plaintiff did not allege a covered loss within the policy’s scope — “under the Practice Income, Extra Expense, Civil Authority, and Sue and Labor provisions of the Policy, coverage is only triggered by direct physical damage or loss to the dental practice”; Aspen maintained that the plaintiff did not specifically assert any “direct physical damage or loss,” which means, pursuant to Minnesota law, “tangible, discernable alteration of insured property … not merely loss of use or functional impairment of property.”

The court agreed with Aspen in that the plaintiff has not successfully alleged direct and physical loss or damage to her practice: “(I)t is legally insufficient for a plaintiff merely to allege that steps taken to address a threat to human health have caused her property to suffer a loss of use or function without also plausibly pleading that the insured property has itself been physically contaminated,” and, further, the plaintiff “has not asserted that her property has been actually contaminated by COVID-19.”

Regarding the plaintiff’s breach of contract allegation and claims for declaratory judgment, the judge said these too fail necessarily because of her failure to allege the above causes of action.

However, Berkseth-Rojas will have another chance to replead her case — “district courts often afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise the court that they are unwilling or unable to amend in a manner that will avoid dismissal,” the judge explained.

The plaintiff is represented by the Lanier Law Firm, Dicello Levitt Gutzler, and Bracewell & Giuliani. The defendant is represented by Sidley Austin.