A North Carolina federal judge has entered summary judgment for Sompo America Insurance Co., permanently dismissing an auto parts manufacturer’s bid for $50 million in insurance coverage tied to COVID-19-related losses. The dispute centered on a communicable disease endorsement and whether the insured, Teijin Automotive Technologies NA Holding Corp., could meet its two-part trigger: proof of actual presence of a communicable disease at an insured location and proof that access to that location was limited by a governmental order or by a Teijin officer because of that presence. U.S. District Judge Thomas D. Schroeder concluded the record did not establish the required link between confirmed COVID-19 at any facility and the access restrictions Teijin relied upon.
Summary Judgment Turns on Two Endorsement Requirements
Judge Schroeder’s order found Teijin did not satisfy both prerequisites for coverage under the communicable disease endorsement. The endorsement required the actual, not suspected, presence of a communicable disease at an insured location. It also required that access to the insured location was limited, restricted, or prohibited by an order of a governmental agency or by an officer of Teijin. In granting Sompo’s motion for summary judgment, the court treated these requirements as separate, mandatory conditions that Teijin had to prove based on the record.
Teijin sought coverage for losses sustained at six plants located in North Carolina, Louisiana, Indiana, Ohio, and Michigan, and it asserted a breach of contract claim after Sompo denied coverage. The court determined that Teijin established actual presence only as to the North Carolina and Louisiana facilities, where employees tested positive for COVID-19 on the same day they worked onsite. For the other locations, the court found the evidence insufficient because positive test results reflected confirmations weeks after the employees last worked onsite, or, in one instance, lacked any indication of when the employee last worked onsite. Those evidentiary gaps prevented Teijin from meeting the endorsement’s actual-presence standard at the remaining facilities.
Access Restrictions Were Not Shown to Emanate from Onsite Presence
Even where Teijin could demonstrate actual presence of COVID-19 at two facilities, the court held that the second endorsement element was not met. Judge Schroeder concluded the record did not show that any relevant governmental orders or corporate decisions limiting access to an insured facility emanated from the presence of COVID-19 at that facility. In other words, Teijin did not connect a confirmed onsite case to a specific access restriction imposed by government action or by a company officer as contemplated by the endorsement.
The order addressed governmental orders affecting North Carolina and Louisiana and found they were framed around essential versus nonessential business operations, rather than the confirmed presence of the virus at a particular plant. That distinction mattered under the endorsement’s structure because it required access limitations tied to actual presence at an insured location, not generalized pandemic conditions. As a result, the court determined Teijin failed to establish the causal link necessary to trigger coverage, which independently supported summary judgment for Sompo regardless of Teijin’s showing on actual presence at select facilities.
Court Finds Concealment and Rejects Extra-Contractual Claims
The court further held that even if Teijin had established coverage under the communicable disease endorsement, coverage would be voided based on willful concealment related to an Indiana facility claim. Judge Schroeder found Teijin willfully concealed that an employee’s positive COVID-19 test result at the Indiana facility was false. The order stated that Teijin’s representations and omissions were made to influence Sompo’s decisions in investigating, adjusting, or paying the claim, which the court treated as sufficient to void coverage under the policy.
Beyond the contract claim, the court rejected Teijin’s bad faith claim on multiple grounds. Judge Schroeder concluded Teijin did not present Sompo with a valid claim under the communicable disease endorsement and did not demonstrate bad faith or aggravated conduct. The order also rejected Teijin’s allegation that Sompo violated North Carolina’s Unfair and Deceptive Trade Practices Act, including claims that Sompo misrepresented policy requirements and unreasonably denied coverage. The court found Sompo’s denial letters were not deceptive because they provided a thorough explanation of Sompo’s position that the endorsement did not apply, and it characterized the denial as reasonable and correct. Sompo’s litigation team included attorneys from O'Melveny & Myers LLP.
Suit Limitation Defense Fails, but Coverage Case Ends
Although Sompo prevailed on the merits, the court did not accept all of the insurer’s positions. Judge Schroeder rejected Sompo’s counterclaim asserting that Teijin’s lawsuit was time-barred by the policy’s suit limitation provision. The provision required any suit against Sompo to be brought within two years and one day after the date of Sompo’s final coverage denial. The court found the limitations clock began on March 22, 2022, when Teijin received Sompo’s final coverage letter.
Teijin filed suit in February 2024, and the court held that filing occurred less than two years after the March 22, 2022 start date identified in the order, rendering the action timely under the policy provision. Even so, that ruling did not affect the final outcome because the court entered summary judgment for Sompo based on Teijin’s failure to meet the endorsement’s trigger requirements and, alternatively, on the concealment finding that would void coverage. The case is Teijin Automotive Technologies NA Holding Corp. v. Sompo America Insurance Co., No. 1:24-cv-00159, in the U.S. District Court for the Middle District of North Carolina.
