The Eighth Circuit Court of Appeals filed an opinion on February 12, 2024, in the case of Mt. Hawley Insurance Company v. City of Richmond Heights which upheld the insurer’s denial of coverage and dismissing all counterclaims by the City of Richmond Heights. Richmond Heights was seeking coverage for tax revenue lost due to COVID -19 closures under a commercial policy held through Mt. Hawley Insurance Company. The claim was denied by the insurance company, which was seeking a ruling stating the company was not obligated to cover such losses. The US District Court for the Eastern District of Missouri dismissed all counterclaims, refused requests to amend two of the counterclaims, and granted declaratory judgment to Mt Hawley.
Richmond Heights’ policy was to protect against losses of income including sales tax revenue. During the COVID-19 pandemic, shutdowns caused the city to lose revenue from sales tax, which they filed a claim for. Citing the policy requirement of “direct physical loss of or damage to property”, Mt Hawley denied the claim, leading to the initial court filing. Richmond Heights then made counterclaims relating to breach of contract, vexatious refusal to pay, fraudulent inducement and misrepresentation, and breach of fiduciary duty. After the Court initially dismissed the claims, the City appealed, claiming under the Additional Covered Property Endorsement (ACPE), the need for physical damage was eliminated.
The Court of Appeals affirmed the District Court ruling, noting that the proposed reading by the City would create a conflict between the original policy provisions and the ACPE provisions which would create an interpretation that would make certain portions of the policy meaningless. On the question of amending the complaints, the Court noted that in cases in the Sixth and Eleventh Circuits, similar cases fell short of their claims due to the fact that a lack of usability, such as the COVID-19 shutdowns, did not constitute a physical loss as required by insurance, again upholding the District Court’s findings. The Appeals Court also noted that since many of the counterclaims could not be separated from the initial claim, they could not be pursued.
Taxpayers should be aware of situations like this and how it may impact their liabilities. When reviewing contracts or policy, it is important to fully understand and agree to all parts, especially those that seem contradictory or like they may override other portions. In addition to local jurisdictions, taxpayers may want to do as the Court did here and look at how nearby authorities have interpreted similar claims to ensure they have a complete awareness of real-life applications of the laws, policies, and/or contracts they deal with. (Mt. Hawley Ins. Co. v. City of Richmond Heights; US Court of Appeals for the Eighth District Case No. 23-1701, Decision filed February 12, 2024)