(Article from Insurance Law Alert, December 2021)
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This month, appellate courts in two Ohio districts affirmed the dismissal of policyholder suits seeking business interruption coverage in the wake of government-mandated shutdowns.
In Nail Nook, Inc. v Hiscox Ins. Co. Inc., 2021 WL 5709971 (Ohio Ct. App. 8th Dist. Dec. 2, 2021), the court ruled that a virus or bacteria exclusion unambiguously barred coverage for the policyholder’s losses. The exclusion applied to loss or damage caused directly or indirectly by “[a]ny virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” Alternatively, the court noted that even absent the virus exclusion, the policyholder’s claims would fail because the complaint did not allege “direct physical loss of or damage” to insured property.
Similarly, in Sanzo Enterprises, LLC v. Erie Ins. Exchange, 2021 WL 5816448 (Ohio Ct. App. 5th Dist. Dec. 7, 2021), the court held that the phrase “direct physical loss of or damage to property” in an insurance contract does not cover the loss of use of a property caused by government shutdown orders. Rather, “the plain and ordinary meaning of the phrase ‘direct physical loss of or damage to’ unambiguously requires a tangible and structural damage to the property.” Because the policyholder’s property “exists in the same state as it did before the Orders,” the court held that there was no physical loss. The court noted that even if the policyholder alleged that the virus was physically present on its premises, coverage would still be unavailable because the virus would not cause damage that required repair or restoration.
Additionally, the court found that the absence of a virus exclusion was not material to the coverage analysis. The court explained: “Because appellant cannot establish its initial entitlement to coverage, we need not consider the impact of the lack of a virus exclusion.”
Finally, the court ruled that a civil authority provision did not apply. The court reasoned that the government orders were issued to prevent the spread of the virus, not in response to any damage to other property.