(Article from Insurance Law Alert, September 2021)
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In the second federal appellate ruling in this context, the Eleventh Circuit affirmed the dismissal of claims seeking coverage for business losses incurred in the wake of government closure orders. Gilreath Family & Cosmetic Dentistry, Inc. v. Cincinnati Ins. Co., 2021 WL 3870697 (11th Cir. Aug. 31, 2021).
Applying Georgia law, the Eleventh Circuit ruled that the complaint did not allege accidental physical loss or damage because there was no “actual change in insured property” that rendered it “unsatisfactory for future use” or that required “repairs.” The court expressly rejected the contention that the presence of particles caused physical damage or loss to the insured (or other) property for purposes of business interruption and civil authority coverage. In addition, the court emphasized that emergency dental procedures conducted during the closure periods demonstrated that the property was capable of being used for its intended purpose.
The Sixth Circuit also affirmed the dismissal of business interruption coverage claims in Santo’s Italian Café LLC v. Acuity Ins. Co., No. 21-3068 (6th Cir. Sept. 22, 2021). Applying Ohio law, the appellate court ruled that neither the virus itself nor government shut down orders constituted a “direct physical loss of or damage to” property. The court explained: “A loss of use simply is not the same as a physical loss. It is one thing for the government to ban the use of a bike or a scooter on city sidewalks; it is quite another for someone to steal it.” The court noted that the policy’s “period of restoration” provision reinforced its conclusion, noting that there was nothing to repair, rebuild or replace that would allow the resumption of in person dining operations.
Other federal appellate courts are also poised to rule on this issue. In Uncork and Create LLC v. Cincinnati Ins. Co., No. 21-1311 (4th Cir.), the Fourth Circuit will decide whether, under West Virginia law, a policyholder’s inability to use insured property for its intended purpose constitutes a physical loss for purposes of business interruption coverage. And several policyholder businesses urged the Second and Seventh Circuits to reverse a number of district court rulings dismissing their claims that insurers wrongfully denied coverage for their COVID-19-related losses. 10012 Holdings v. Hartford et al., No. 21-80 (2d. Cir.); Bradley Hotel Corp. v. Aspen Specialty Ins. Co., No. 21-1173 (7th Cir.); Crescent Plaza Hotel Owner LP v. Zurich American Ins. Co., No. 21-1316 (7th Cir.); Mashallah Inc. v. West Bend Mutual Ins. Co., No. 21-1507 (7th Cir.); Bend Hotel Development Co. v. Cincinnati Ins. Co., No. 21-1559 (7th Cir.).