[co-author: Rebecca Joseph]
In a relatively concise decision, the U.S. 8th Circuit Court of Appeals Posted the first United States Court of Appeals ruling on insurance coverage for COVID-19 claims. The 8th Circuit ruling asserted that the insurance policy at issue did not cover loss of business income due to the COVID-19 pandemic and related government restrictions.
Oral Surgeons PC (OSPC) is an Iowa-based oral and maxillofacial surgery practice. At the end of March 2020, following the declaration of a state of emergency by the governor of Iowa, the OSPC suspended all non-urgent procedures in its four offices. In May 2020, the state of emergency was lifted and the OSPC was allowed to resume a regular schedule, in accordance with the Iowa Dental Board’s COVID-19 health and safety guidelines.
The OSPC submitted a claim to its insurer, The Cincinnati Insurance Company (Cincinnati), under the business interruption and loss of earnings clause of its policy. The OSPC has claimed to have suffered business disruption and loss of income due to the COVID-19 pandemic and government-imposed restrictions that have limited their performance of elective dental procedures.
The wording of the OPSC’s policy with Cincinnati stated that the coverage included payment for the actual loss of “business income and certain additional expenses incurred due to the suspension of operations” during the “restoration period”. The suspension must have been caused by a direct “loss” of property “in a room. The policy itself defined the term “loss” to mean “accidental physical loss or accidental physical damage”. Cincinnati argued that the policy’s definition of loss covers only the physical loss to the property, and not the type of economic loss for which OSPC has sought recovery.
The 8th Circuit considered and rejected the OSPC’s argument that the disjunctive separation of the police between “physical loss or physical damage” in police parlance created ambiguity and should be interpreted to include “lost or damaged transactions”. the inability to use the business ”as the type of covered loss.
In reviewing de novo and relying on Iowa State law, the 8th Circuit recognized that the use of “physical” in the phrase “physical loss or damage” by the police requires a demonstration of some physical integrity to loss or damage to property. It should be noted that the quotes from state law included in the 8th Circuit decision all dealt with similar insurance policy language, but did not specifically analyze COVID-19 coverage. The 8th Circuit decision included a comparison of three different Iowa courts’ analyzes of “physical loss or damage” in insurance policy parlance.
The 8th Circuit was based on Milligan v. Grinnell Mut. Reinsurance company, an Iowa Court of Appeals case that ruled that the policy wording “direct physical loss or damage” included only injury or destruction that was “of a physical nature.” The 8th Circuit also mentioned Phoenix Insurance Company v. Infogroup, Inc., where the Iowa District Court ruled that “the current use of physics in the context of loss therefore means the loss of something material or noticeable at some level.” The Information group The court also emphasized that “loss of use” and “physical loss or damage” are not synonymous. The 8th Circuit concluded the analysis by citing Pentair, Inc. v. American Guarantee and Liability Insurance Company, where their court concluded that “loss of use or function” is only relevant in determining the amount of loss once “loss or physical damage” has been established.
The 8th Circuit asserted that the three distinct approaches taken by the courts in Iowa all came to the same conclusion – that “physical loss or damage” unambiguously requires a demonstration of physical presence, such as “Physical alteration, physical contamination or physical destruction.” “The 8th Circuit held that a policy requiring proof of physical loss or damage” cannot reasonably be interpreted as covering a simple loss of enjoyment when the property of the insured has not suffered any loss or damage physical”.
The 8th Circuit also cited the provision of the term “restoration period” in the policy as further evidence of the meaning of “physical loss” in the policy. According to the wording of the policy, the “restoration period” begins at the time of loss and ends either on the date the property is repaired, rebuilt or replaced at a reasonable speed and of similar quality, or on the date on which activity resumes at a new permanent location. The 8th Circuit, reading the policy as a whole, asserted that in order to assert a “physical loss” the company must have been able to identify a “period of restoration” in which it repairs, rebuilds or relocates its assets. Commercial activities.
The 8th Circuit concluded that the OSPC had not relied on any type of physical alteration to its premises to constitute a “loss” under the policy. Iowa’s suspension of non-essential business functions, including elective dental procedures, was not considered the type of “physical loss” or “physical damage” defined in the policy.
Citing a 2016 Iowa Supreme Court ruling, the 8th Circuit claimed it would choose not to “strain police words or phrases in order to seek responsibility the police did not have. not intend to buy and that the insured has not bought “. The 8th Circuit’s recourse to pre-COVID case law is notable in that it indicates the Court’s view that the issue of physical appearance with respect to the definition of “physical loss” or “physical damage” Is not new in the current situation and has already been carefully analyzed and eliminated in past case law, requiring no further analysis unique to this COVID-19 coverage landscape.
Unlike many COVID-19 insurance claim cases circulating in state courts across the country, the OPSC complaint did not assert that the presence of the virus had tangibly or materially altered the structure. physics of their premises. As such, the 8th Circuit provided no indication as to the validity of such an argument, leaving uncertainty as to how future appellate courts might deal with these allegations. However, the language of the 8th Circuit, particularly in its inclusion of the aforementioned three approaches to defining “physicality”, would suggest the same narrow interpretation of “physicality” as it applies to the presence of the virus which does not alter not materially a physical structure.
Going forward, state courts are not bound by the 8th Circuit ruling in this case. However, the analysis provides much needed clarification on the part of federal courts on the issue of “physical loss”. Here are the main points to remember:
- There is nothing new in the definition of physicality when it comes to COVID-19 coverage cases. State law’s pre-COVID insurance coverage decisions provide all the guidance the courts need.
- “Physical” is the key to defining “physical loss” and “physical damage” to property.
- Neither the loss of use nor the economic loss meets the demonstration of “physics” required to maintain a claim for coverage in the event of business interruption or loss of income.