In what appears be the first federal appellate decision on COVID-19 business interruption claims, the Eighth Circuit affirmed the district court’s dismissal of the insured’s claim based upon closure due to the pandemic. Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2021 U.S. App. LEXIS 19775 (8th Cir. July 2, 2021).
After the Iowa governor declared a state of emergency and imposed restrictions on dental practices, the insured stopped performing non-emergency procedures in late March 2020. Oral Surgeons resumed procedures in May 2020 when restrictions were lifted.
Oral Surgeons submitted a claim to Cincinnati which was denied. The policy insured Oral Surgeons against lost business income sustained due to the suspension of operations “caused by direct ‘loss’ to property.” The police defined “loss” as “accidental physical loss or accidental physical damage.” Cincinnati denied the claim because there was no direct physical loss or physical damage to Oral Surgeons’ property. Oral Surgeons sued and the complaint was dismissed.
On appeal, Oral Surgeons maintained that the COVID-19 pandemic and the related government-imposed restrictions on performing non-emergency dental procedures constituted a “direct ‘loss’ to property” because the insured was unable to fully use its office. The court determined there must be some physicality to the loss or damage of property, e.g., a physical alteration, physical contamination, or physical destruction. The policy did not cover mere loss of use when the insured’s property suffered no physical loss or damage. This construction of the policy accorded with coverage of lost business income during the “period of restoration.” Property that suffered physical loss or physical damage required restoration. That the policy provided coverage until property “should be repaired, rebuilt or replaced” or until business resumes elsewhere assumed physical alteration of the property, not mere loss of use.
The complaint did not allege any physical alteration of property. No facts were alleged to show that Oral Surgeons had suspended activities due to direct “accidental physical loss or accidental physical damage.” The district court’s judgment was affirmed.