Nail Nook, Inc. v. Hiscox Ins. Co., Inc.

Citation: 2021 Ohio 4211Docket: 110341

Court: Ohio Court of Appeals; December 1, 2021; Ohio; State Appellate Court

Original Court Document: View Document

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The court affirmed the trial court's decision granting Hiscox Insurance Company’s motion for judgment on the pleadings regarding Nail Nook, Inc.'s claim for coverage under a commercial insurance policy for business interruption losses due to COVID-19. Nail Nook had sought coverage for losses incurred following the Ohio Governor's executive order mandating the closure of nail salons. Hiscox denied the claim based on a “virus or bacteria” exclusion in the policy. Nail Nook argued that the policy was ambiguous and asserted that it experienced direct physical loss or damage. However, the trial court ruled that the unambiguous virus exclusion barred coverage for losses related to the coronavirus. The appellate court found that Nail Nook could not establish any facts that would entitle it to coverage, as the policy explicitly excluded losses caused by viruses. Consequently, the trial court's ruling was upheld, and Nail Nook's appeal was rejected.

The Trial Court incorrectly granted judgment on the pleadings in favor of Appellee, as Hiscox’s insurance policy contains ambiguities that allow for multiple interpretations. Hiscox issued Businessowners Policy No. UDC-2401467-BOP-19 to Nail Nook, covering the period from December 1, 2019, to December 1, 2020. The policy insures business personal property located at Nail Nook’s premises but explicitly excludes coverage for the actual building or business space. Coverage is limited to "direct physical loss of or damage to Covered Property" caused by Covered Causes of Loss, defined as risks of direct loss except where excluded or limited by the policy. 

Additional Coverage is provided if the insured can demonstrate a threshold claim related to direct physical loss or damage to contents, and includes a Business Income provision that compensates for income loss due to operational suspension from such damage. The Extra Expense provision covers necessary expenses incurred during the restoration period resulting from direct physical loss or damage. The “period of restoration” is defined as the time needed to repair, rebuild, or replace the damaged property or until business resumes at a new location.

The policy also includes specific exclusions, notably a virus or bacteria exclusion that denies coverage for losses caused by any microorganism that induces illness or disease. The trial court determined that this exclusion clearly precluded all potential coverage. Nail Nook contests this judgment, arguing that the trial court misapplied the law in granting Hiscox’s motion for judgment on the pleadings, which is evaluated under a de novo standard of review.

The Ohio Supreme Court has determined that a Civ.R. 12(C) motion for judgment on the pleadings should be treated as a late motion to dismiss for failure to state a claim, thus applying the same standards as a Civ.R. 12(B)(6) dismissal. To dismiss a complaint on these grounds, the court must ascertain that the plaintiff cannot prove any set of facts that would warrant relief, assuming all allegations are true and drawing reasonable inferences in favor of the plaintiff. 

Contract interpretation is a legal matter for the court, and if a contract's terms are clear and unambiguous, the court cannot create a new contract based on unexpressed intent. In this case, the trial court found that Nail Nook’s losses were excluded from coverage due to a clear and unambiguous virus exclusion in the policy. The policy covers "Business Personal Property" like office equipment but does not cover general business activities. Coverage for business interruption losses requires proof of direct physical loss or damage to covered property, which Nail Nook failed to establish, as it attributed its damages solely to the coronavirus.

Citations to relevant case law, including Santo’s Italian Café LLC v. Acuity Ins. Co. and MIKMAR, Inc. v. Westfield Ins. Co., illustrate that similar policies have been interpreted to deny coverage for business interruptions related to the pandemic, affirming that direct physical loss or damage is a prerequisite for such claims. The policy language in question aligns with the findings in Santo’s, which also concluded that coverage for losses due to pandemic-related events was not applicable under the insurance terms.

The insurance policy mandated reimbursement for business income lost due to a necessary suspension of operations caused by direct physical loss or damage to the property. A "suspension" was defined as a slowdown or complete cessation of business activities or when the premises became untenantable. The Sixth Circuit addressed whether a government order prohibiting in-person dining due to a pandemic constituted direct physical loss or damage, concluding it did not. The court found that the restaurant in question was not tangibly destroyed and retained ownership and use of the property, despite the shift in operational capabilities.

In the case of MIKMAR, Inc. and Michael’s Inc., which operated a hotel and banquet facility, the plaintiffs filed claims for lost business income due to pandemic-related losses, which were denied by Westfield Insurance Company. The plaintiffs subsequently sued on behalf of themselves and a proposed class of similar businesses. The insurance company moved to dismiss the case, which the trial court granted. The relevant policies provided coverage for direct physical loss or damage from covered causes, but included a virus exclusion clause, stating no coverage for losses caused directly or indirectly by any virus. The Sixth Circuit did not evaluate this exclusion since the lack of initial coverage was sufficient to dismiss the claims. The policies also covered actual loss of business income and extra expenses incurred during the period of restoration, which was defined as the time from direct physical loss until the property was repaired or business resumed at a new location. MIKMAR’s policy contained similar exclusions, including the specific virus exclusion.

The insurance policy explicitly excludes coverage for any virus, bacterium, or microorganism that can cause physical distress, illness, or disease. The policy's exclusion states that losses are not covered regardless of any other contributing causes. The district court determined that the insurance company successfully demonstrated that the plaintiffs' asserted losses fell within this virus exclusion, which was deemed clear and unambiguous. The court noted that even if government orders contributed to the losses, the policy's language excludes any losses caused, directly or indirectly, by a virus, eliminating the need for detailed causation analysis. The trial court found that the virus exclusion was consistent with similar rulings in other cases.

Furthermore, the court observed that, even assuming the truth of the allegations in the complaint, Nail Nook could not establish a valid claim for coverage as it failed to prove "direct physical loss of or damage to Covered Property," necessary for "Business Income or Extra Expense" coverage. Consequently, the court affirmed the trial court’s decision to grant Hiscox's motion for judgment on the pleadings, stating there was no basis for coverage of coronavirus-related damages. The judgment was upheld, and costs were ordered against the appellant, with reasonable grounds for the appeal acknowledged. The court directed the issuance of a special mandate to enforce the judgment.