8th Circuit: Surgery center can't get coverage for COVID-19 losses
2021 INSDBREF 0387
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By Donna Higgins
WESTLAW Insurance Daily Briefing
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July 2, 2021
(July 2, 2021) - An Iowa oral surgery practice cannot get coverage for business losses stemming from the coronavirus pandemic because it failed to allege any physical alteration of its property, a federal appeals court has ruled.
"The policy cannot reasonably be interpreted to cover mere loss of use when the insured's property has suffered no physical loss or damage," the 8th U.S. Circuit Court of Appeals said July 2 in the first federal appellate court ruling on coverage for COVID-19 business interruption losses.
Oral Surgeons' suit tossed
Oral Surgeons was forced to cease all nonemergency services at its four clinics in the Des Moines, Iowa, area by a March 26, 2020, order intended to slow the spread of COVID-19.
The dental practice filed a claim with Cincinnati Insurance Co. a month later, seeking coverage for business income losses caused by the order, which it says barred access to its properties.
Cincinnati denied coverage, saying in a letter that "there must be direct physical loss or damage" to property for the claim to be covered and that the pandemic did not meet that requirement.
Oral Surgeons sued Cincinnati, which moved to dismiss the suit in July 2020.
U.S. District Judge Charles R. Wolle of the Southern District of Iowa granted Cincinnati's motion Sept. 29, 2020, saying Oral Surgeons did not allege any physical loss or damage.
He said the policy's definition of loss is "accidental physical loss or accidental physical damage," but Oral Surgeons said its loss was from COVID-19 and the order to suspend operations.
Oral Surgeons appealed in October.
'Period of restoration'
Oral Surgeons argued that the insurance policy's "disjunctive definition" of "loss" as "physical loss" and "physical damage" created an ambiguity that should be resolved in its favor.
"Physical loss" includes the loss of use of its property, Oral Surgeons said.
The appeals panel rejected that argument, saying there must be "some physicality" to the loss of or damage to property.
The policy covers lost business income and extra expenses during a "period of restoration," which begins at the time of the loss and ends when the premises is "repaired, rebuilt or replaced" or when business resumes at a new location, the panel explained.
"Property that has suffered physical loss or physical damage requires restoration," the panel said. "That 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."
An Iowa oral surgery practice that was denied COVID-19 business interruption coverage has argued before a federal appellate panel that the pandemic caused physical damage, which triggers coverage under the company's Cincinnati Insurance Co. policy.
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