Court finds fine print requires dismissal of beer wholesaler’s insurance claims for spoiled beer wholesaler couldn’t sell on account of Disney’s COVID-19 closure. Hint: Disney’s closure caused the loss, not the COVID.

The plaintiff, a wine and beer distributor bought beer in accordance with its contract with Walt Disney Parks and Resorts US Inc. On March 15, 2020, before the plaintiff shipped its product, Disney voluntarily closed the parkes due to the COVID-19 pandemic. Disney refused to accept Plaintiff’s product or to compensate the beer wholesaler for the beer.

Four days later, the beer distributor filed an insurance claim for the loss of business income, extra expense, inventory, and accounts receivable caused by the pandemic asserting that the beer spoiled while Disney remained closed. The insurance company refused the beer distributor’s claim. The beer wholesaler sued the insurance company for breach of contract and a declaratory judgment that the distributor was entitled to coverage under its insurance policy. You can read the complaint filed by the beer distributor along with the copy of the insurance policy and supporting documents here.

The insurance company asked the Court to dismiss the claims for the spoiled beer.

In considering the claims, the Court held that the beer wholesaler had properly alleged that the spoiled beers it had on inventory constituted “stock” and had plausibly alleged that the spoilage made the beer inedible which was a physical loss. The insurance company countered arguing that spoilage wasn’t “physical loss or damage” as those terms were used in the insurance policy because there was no actual damage to the wholesaler’s beer. The wholesaler responded that “direct physical loss” didn’t require actual damage or destruction of the property. 

The Court understood the question raised by the parties to be whether “spoliation of the beer constitutes ‘direct physical loss or damage’” but pointed out that there were exclusions to coverage in the policy that precluded covered losses caused by “delay, loss of use or loss of market” and also that the “acts or decisions … of any person, group or organization or governmental body” was not a covered loss. 

Because the wholesaler’s lawyers pled in the complaint that the spoiled beer and loss of income was a direct physical loss “Due to Walt Disney Parks & Resorts US Inc.’s voluntary closure” the Court agreed with the insurance company’s contentions that the loss was caused by loss of market, and the acts of another (Disney) – not the pandemic:

“Although the Policy does not explicitly exclude pandemic-related losses, Plaintiff’s loss arose from Disney’s act of refusing the beer, not from the pandemic. COVID-19 itself did not damage Plaintiff’s beer. In other words, Plaintiff’s beer would not have been damaged or destroyed but for Disney’s decision, making Disney the cause of the alleged spoliation. For example, if Disney had accepted and refrigerated Plaintiff’s beer or otherwise compensated Plaintiff, then Plaintiff would not have suffered any harm, regardless of the existence of the pandemic.”

“Rather, COVID-19 merely motivated Disney’s decision to voluntarily close and to refuse acceptance of Plaintiff’s beer. But Disney’s motivation for its decisions is irrelevant. The Policy explicitly excludes from coverage such business decisions by persons, groups, or organizations. The pandemic does not change the terms of the Policy, which the parties bargained for and agreed to. Moreover, the Complaint itself states that Plaintiff experienced “loss of use” of its product, which the Policy expressly excludes from coverage. Even construing the coverage terms as broadly as possible and the exclusionary terms as narrowly as possible, the Complaint fails to overcome the Policy’s exclusionary language. See Fabricant, 474 F. Supp. 2d at 1331. Thus, Plaintiff fails to allege enough facts to warrant coverage because Disney’s refusal of Plaintiff’s product is not a Covered Cause of Loss under the Policy.”

You can read the Court’s full opinion in this case, Harvest Moon Distributors LLC v. Southern-Owners Insurance Company, here.

The fine print mattered here. Carefully considering the language used in the complaint, even if Disney was omitted and the inability to sell the beer was alleged in a general sense – that would likely have been excluded under the “loss of market” language as well. Apparently nothing short of COVID-19 infected beer would have gotten past these exclusions.