The 8th Circuit recently issued a groundbreaking opinion in favor of the insurance carrier that is sure to affect COVID-19 Business Interruption cases across the county.
In Oral Surgeons, P.C. v. Cincinnati Insurance Company, the 8th Circuit rejected a policyholder’s claim for business interruption and extra expense coverage. The Court found the insurance policy unambiguously required physical injury to property, which the insured had failed to allege.
The policy Cincinnati Insurance Companypolicy provided coverage for business income and extra expenses due to the insured’s suspension of operations “caused by direct ‘loss’ to property.” The policy further defined “loss” as “accidental physical loss or accidental physical damage.” The insured dental practice filed suit claiming that the COVID-19 pandemic and related government-imposed restrictions constituted a “direct loss to property” because it was unable to fully use its offices.
Rejecting the argument that a mere “loss of use” was sufficient to qualify for coverage, the Court emphasized that the policy’s “physical loss” language required some physical alteration to the property. The Court referenced the policy’s use of a “period of restoration” in finding support for the requirement that the loss be physical in nature, stating “[t]hat the policy provides coverage until property “should be repaired, rebuilt, or replaced” or until business resumes elsewhere assumes physical alteration of the property, not mere loss of use.”
The Court concluded that the insured’s Complaint did not allege that COVID-19 was present on the property. The Insured alleged that it was required to suspend operations due to the pandemic and government-imposed restrictions on the community in general because of the presence of Covid-19 in the community. This was insufficient to allege direct accidental physical loss or accidental physical damage to the property.
Oral Surgeons represents the first appellate case addressing business interruption claims arising out of the COVID-19 pandemic. The appellate decision echoes an increasing number of district court decisions in Missouri and other jurisdictions dismissing policyholders’ claims for coverage based on mere loss of use resulting from local authorities’ Stay-At-Home orders and other restrictions implemented to reduce the spread of COVID-19 during the pandemic. In the coming months, we expect to see many more decisions following Oral Surgeon’s lead in issuing favorable decisions for insurance companies on similar business interruption claims.
See Oral Surgeons, P.C. v. Cincinnati Insurance Company, 2 F.4th 1141 (8th Cir. 2021).