(Article from Insurance Law Alert, December 2022)
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Answering a certified question, the Ohio Supreme Court ruled that a business owner was not entitled to coverage for losses incurred in the wake of government closure orders aimed at slowing the spread of the virus. Neuro-Communication Services, Inc. v. Cincinnati Ins. Co., 2022 WL 17573883 (Ohio Dec. 12, 2022).
An Ohio district court certified the following question to the Ohio Supreme Court:
Does the general presence in the community, or on surfaces at a premises, of the novel coronavirus known as SARS-CoV-2, constitute direct physical loss or damage to property; or does the presence on a premises of a person infected with COVID-19 constitute direct physical loss or damage to property at that premises?
The court answered in the negative, holding that none of the three scenarios listed in the question involved direct physical loss or damage. As a preliminary matter, the court agreed with the insurer that “loss” requires something physical in nature and does not include a loss of the ability to use property for its intended purpose. The court noted that the policy’s “period of restoration” provision, which refers to repair, rebuilding or replacement, reinforces the conclusion that loss must involve some sort of physical alteration.
With respect to the three factual scenarios presented in the certified question, the court noted that the first and third were “relatively straightforward to answer” because they “clearly do not involve any physical alteration of Covered Property.” The court noted that the answer to the second scenario may be less obvious, but was “not appreciably different.” In particular, the court explained that regardless of whether virus particles exist only temporarily on surfaces (a fact disputed by the parties), their mere existence does not involve any physical alteration to property.
The court deemed it irrelevant that subsequent policies issued by Cincinnati included a virus exclusion (whereas the policy at issue did not) because the parol evidence rule prohibits consideration of other agreements absent ambiguity. Finally, the court distinguished cases outside the COVID-19 context in which physical loss or damage was found notwithstanding an alleged absence of physical or structural alteration. Those cases, arising out of the presence of harmful gases, vapors or dust, involved different policy language, property that was rendered uninhabitable or “an entirely different degree of harm.”
In other COVID-19 coverage news, the Michigan Supreme Court issued three summary orders this month, denying appeals brought by insured restaurants whose claims for business loss coverage were denied by appellate courts. See Gavrilides Mgmt. Co., LLC v. Michigan Ins. Co., SC 164166 (Mich. Dec. 7, 2022); Three Won Three, Corp. v. Property-Owners Ins. Co., SC 164565 (Mich. Dec. 7, 2022); Gourmet Deli Ren Cen, Inc. v. Farm Bureau Gen. Ins. Co. of Michigan, SC 164578 (Mich. Dec. 7, 2022).