(Article from Insurance Law Alert, April 2022)
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Last month, the Fifth Circuit issued two decisions affirming Louisiana district court dismissals of policyholders’ claims seeking coverage for pandemic-related losses under property policies. In Q Clothier New Orleans, L.L.C. v. Twin City Fire Ins. Co., 29 F.4th 252 (5th Cir. 2022), the court held that coverage for “direct physical loss of or damage to property” does not encompass business income losses related to government shutdown orders. The court explained that the loss of income “is not tangible. Nor is it an alteration, injury or deprivation of property. Q Clothier’s property has been unchanged by the orders.” In addition, the court concluded that there was no civil authority coverage because the executive orders were aimed at slowing the spread of the virus, and were not issued “as a direct result” of a covered cause of loss to nearby property. The court reasoned that the lack of causation between any loss or damage to nearby property and the civil authority orders was fatal to a claim for civil authority coverage.
Citing to its decision in Q Clothier, the Fifth Circuit affirmed the dismissal of COVID-19 claims in Louisiana Bone & Joint Clinic, L.L.C. v. Transportation Ins. Co., 2022 WL 910345 (5th Cir. Mar. 29, 2022). There, the court rejected the policyholder’s assertion that the business income provision was ambiguous and that physical loss of or damage to property could reasonably be interpreted to include loss of use.