Seventh Circuit Rules That Viral Presence On Property Is Not Direct Physical Loss Or Damage (Insurance Law Alert)
04.29.22
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(Article from Insurance Law Alert, April 2022)
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The Seventh Circuit ruled that an Illinois district court properly dismissed COVID-19-related property coverage claims based on the absence of allegations of direct physical loss or damage. East Coast Entertainment of Durham, LLC v. Houston Cas. Co., 2022 WL 1086377 (7th Cir. Apr. 12, 2022). Citing to its decision in Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 20 F.4th 327 (7th Cir. 2021) (discussed in our December 2021 Alert), the court held that the presence of viral particles at insured property is insufficient to allege direct physical loss or damage because the virus does not alter the physical structure or constitute a “use-deprivation so substantial as to constitute a physical dispossession.” Notably, the court also held that there was no conflict between Illinois and North Carolina law regarding the meaning of “direct physical loss,” and that under the law of either state, the policy was unambiguous and did not cover the policyholder's business losses.