Sixth Circuit backs Hartford in COVID case, rejecting a retailer's strategy to analyze coverage under 22 state laws.
The US Court of Appeals for the Sixth Circuit handed down its decision January 27, affirming a lower court's dismissal of COVID-19 business interruption claims and addressing choice-of-law questions in disputes involving nationwide policies.
Walters & Mason Retail, a company incorporated in Tennessee that operates Altar'd State retail stores, had purchased a comprehensive insurance policy from Hartford with coverage from January 30, 2020, through January 30, 2021. Shortly after the policy took effect, COVID-19 began spreading across the country, prompting many states to issue emergency orders temporarily closing or restricting business operations. To comply with these orders, Walters & Mason closed many of its stores and severely limited operations at others.
The company filed claims with Hartford for the business interruption losses it suffered because of lost sales from the closures. Hartford denied coverage, stating the losses were not covered by the policy.
Walters & Mason sued Hartford in Pennsylvania federal court. But with similar COVID coverage cases already working their way through the appeals process, the Pennsylvania judge decided to wait and see how those turned out. When those cases sided with insurers denying coverage under Pennsylvania law, Walters & Mason saw the writing on the wall and asked to move the case to Tennessee and revise its lawsuit. The judge agreed.
After the transfer, Walters & Mason revised its complaint again. Hartford asked the Tennessee court to throw out the case entirely. The judge sided with Hartford, ruling that Walters & Mason hadn't shown its losses were covered under either Tennessee or Pennsylvania law.
On appeal, Walters & Mason argued that because it operates in 22 states, the court should have evaluated the policy under each state's laws separately, rather than applying just one state's law.
The Sixth Circuit rejected this argument. Circuit Judge Cole explained that Pennsylvania's choice-of-law approach, while flexible, doesn't require courts to apply multiple states' laws simultaneously. The court noted it could not locate any cases where courts applying Pennsylvania's choice-of-law rules have analyzed the laws of multiple states simultaneously.
The court pointed out that for more than 60 years, courts applying Pennsylvania's choice-of-law framework have consistently identified one state's law to govern contract disputes, even when multistate insurance policies are involved.
Walters & Mason also argued in its reply brief that it should prevail under Tennessee law, citing a 2024 Tennessee Court of Chancery opinion. But the Sixth Circuit said the company had forfeited that argument by raising it too late. Under appellate procedure rules, challenges to a trial court's decision must appear in the opening brief.
Circuit Judge Mathis, in a concurring opinion, addressed the Tennessee law question anyway. He concluded the retailer's claims would fail under Tennessee law regardless.
The policy's virus exclusion barred coverage for loss or damage caused directly or indirectly by the presence, growth, proliferation, spread or any activity of fungus, wet rot, dry rot, bacteria or virus.
Mathis explained that the exclusion unambiguously applies when loss or damage is caused by the spread of a virus. Since Walters & Mason did not dispute that COVID-19 is a virus or that the virus caused its losses, the exclusion applied.
The decision reinforces that courts applying Pennsylvania's choice-of-law rules will select a single state's law to govern multistate insurance policy disputes, rather than parsing coverage under multiple jurisdictions. The Sixth Circuit found no precedent requiring simultaneous analysis of 22 different state laws, even when an insured operates in all those states. The concurring opinion also confirms that virus exclusions barring coverage for losses caused by the spread of a virus apply to COVID-19 business interruption claims. According to the court, the exclusion language unambiguously covers situations where a virus causes the insured's losses. The case also highlights the importance of procedural timing in appellate litigation, as Walters & Mason forfeited its Tennessee law argument by failing to raise it in its opening brief.
