## Facts

- Elegant Massage, L.L.C. operated a therapeutic massage business in Virginia Beach, Virginia.
- State Farm issued an all-risk commercial property policy effective July 22, 2019 to July 22, 2020, including “Loss of Income and Extra Expense” coverage.
- In March 2020, Virginia executive orders restricted or suspended in-person personal-care services due to COVID-19.
- Elegant Massage sought business-income and extra-expense benefits, alleging the orders caused “direct physical loss” and triggered “civil authority” coverage by prohibiting access to the premises.
- State Farm denied the claim, asserting the policy required physical loss to property and that a virus exclusion barred coverage.
- Elegant Massage filed a putative class action asserting breach of contract and declaratory relief (and related extra-contractual theories in certain pleadings).
- State Farm moved to dismiss under Rule 12(b)(6).

## Issues

1. Whether allegations of loss of use of insured premises due to COVID-19 executive orders plausibly alleged “accidental direct physical loss” under an all-risk property policy.
2. Whether the complaint plausibly triggered civil-authority business-income coverage based on executive orders restricting access to the premises.
3. Whether the policy’s virus exclusion unambiguously barred coverage at the pleading stage.
4. Whether the complaint could proceed as a putative class action given allegedly uniform policy language and common denial rationale.

## Decision

- The court denied State Farm’s motion to dismiss in substantial part.
- The court held the complaint plausibly alleged “direct physical loss” because “loss” could include loss of use or access, not only structural alteration, at the pleading stage.
- The court found the civil-authority allegations sufficient where executive orders were pleaded as prohibiting access and issued in response to dangerous physical conditions in the community.
- The court declined to hold the virus exclusion dispositive on a motion to dismiss, concluding it did not unambiguously preclude coverage as a matter of law given plausible competing readings.
- The court permitted the central contract and declaratory claims to proceed while dismissing certain peripheral claims.

## Legal Principles

- At the pleading stage, “direct physical loss” in property coverage may be plausibly alleged where governmental action renders property unusable for its intended purpose, if policy language is reasonably read to treat “loss” as distinct from “damage.”
- Civil-authority coverage may be plausibly triggered where a governmental order is alleged to prohibit access to the insured premises and is connected to dangerous physical conditions.
- Under Virginia insurance-contract rules applied by the court, ambiguous coverage terms are construed in favor of the insured, and exclusions are construed narrowly; an exclusion must be unambiguous to bar coverage on a motion to dismiss.
- A complaint may support class treatment allegations where materially uniform policy language and a standardized denial approach create common, predominating interpretive questions.

## Conclusion

The court allowed Elegant Massage’s COVID-19 business-interruption suit to proceed past the pleadings, finding plausible allegations of “direct physical loss” and civil-authority coverage and concluding the virus exclusion did not clearly bar coverage as a matter of law at the motion-to-dismiss stage.


Elegant Massage, L.L.C. v. State Farm Mut. Auto. Ins. Co., No. 2:20-cv-265, 2022 WL 433006 (E.D. Va. Feb. 11, 2022)