Talking about Covid-19 and the car wash: Agent was improperly joined and virus exclusion applied to bar business interruption coverage.

January 31st, 2021 By Sheila Tan

The joinder of an insurance adjuster or agent as a defendant, in a case against an insurance carrier, is a commonly used strategy to defeat diversity. Many attorneys for insurance practitioners have found that challenging joinders of insurance agents and adjusters can be an exercise in futility given the broad reach of the Texas Insurance Code. But a district court in the Western District of Texas recently affirmed the importance of challenging a plaintiff’s failure to allege specific, affirmative misrepresentations about policy coverage when faced with broad allegations of negligent misrepresentation, Insurance Code, and DTPA violations against an insurance agent.

Vizza Wash, LP v. Nationwide Mutual Insurance Company, No. 5:20-cv-00680-OLG, involved an improper joinder and a 12(b)(6) motion to dismiss for failure to state a claim. Plaintiff Vizza Wash operates multiple car wash locations in Central Texas and had filed a claim with its insurer Nationwide for business income losses stemming from Covid-19-related shut-down orders. Nationwide denied the claim because Vizza Wash’s losses were excluded under the policy’s virus exclusion, which excluded coverage for loss or damage caused directly or indirectly by “any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness, or disease.” Subsequently, Vizza Wash sued Nationwide as well as Bradley Worth, its insurance agent.

Nationwide removed the action to federal court on the basis of diversity jurisdiction, claiming that Worth had been improperly joined in the suit. Vizza Wash claimed that Worth was negligent, had made misrepresentations, and had violated the Texas Insurance Code and DTPA, but the court found that Vizza Wash failed to allege any specific  misrepresentations made by Worth that induced it to purchase the insurance policy nor had Vizza Wash alleged that it specifically requested a certain type of coverage that Worth failed to obtain. Further, the complaint did not include any allegations to support an inference that Worth had any specific basis to know Vizza Wash expected the policy to provide coverage for Covid-19-type business interruptions. Thus, Vizza Wash’s claims against Worth failed as a matter of law.

Because the court determined it had jurisdiction to hear the case, it proceeded to analyze Nationwide’s motion to dismiss. After reviewing the policy, Judge Orlando Garcia determined that the policy’s virus exclusion was unambiguous and “plainly applicable to Plaintiff’s insurance claim.” He also pointed out that Vizza Wash failed to allege any independent injury from the failure to pay policy benefits, and thus, the extra-contractual and bad-faith claims were also dismissed.