All-risk insurance coverage does not cover all risks of COVID-19

The Eleventh Circuit has answered an important and timely question about insurance coverage for business losses due to COVID-19. Under Florida law, an “all risk” insurance policy covering direct physical loss or damage does not insure losses and expenses incurred by businesses as a result of COVID-19.

In SA Palm Beach, LLC against certain Lloyd’s of London underwriters, 2022 US app. LEXIS 12210 (11th Cir. May 5, 2022), the court considered the particular wording of the policy at issue in four consolidated appeal cases providing coverage for “direct physical loss or damage to” property or “physical loss or damage direct to » goods . The four insured companies, SA Palm Beach, Emerald Coast Restaurants, Rococo Steak and RTG Furniture, all lost on motions to dismiss in district courts. In an opinion written by Justice Jordan and joined by Chief Justice Pryor and Justice Anderson, the court addressed the details of each underlying insurance policy and loss claim in the consolidated cases.

SA Palm Beach, a fine dining restaurant, said it was unable to use its property for its intended purpose due to state and local closure orders. SA Palm Beach claimed to have suffered physical loss in the form of diminished value, loss of business revenue, and forced physical alterations during a period of restoration. The SA Palm Beach policy with Lloyd’s London defines “covered causes of loss” as “direct physical loss unless the loss is excluded or limited in this policy”, but the policy does not define the term “direct”, “physical”, “loss”, or “damage”. SA Palm Beach also claimed that its policy provides business interruption coverage in the sections regarding “suspension” of business during a period of “operations” caused, again, by “direct physical loss or property damage”.

Emerald Coast, which operated a sports bar and restaurant, has also been subject to state and local shutdown orders due to the pandemic, and its insurance policy with Aspen Specialty Insurance contains substantially identical loss provisions. and direct physical damage. Emerald Coast alleged that the presence of actual COVID-19 particles on its physical property impaired its value, usefulness and normal functioning. Aspen Specialty Insurance also insured the third company, Rococo Steak, which operated a steakhouse in St. Petersburg. Rococo’s policy was substantially identical to that of Emerald Coast and SA Palm Beach with respect to provisions for direct physical loss and damage involved. Rococo included a claim that viruses like COVID-19 “infest property and adhere to its surfaces”, which can cause some sort of structural change to the property that falls within the scope of the term “direct physical loss or damage. to the covered premises.

The fourth company, Rooms-To-Go (“RTG”), operates under a cover tower spreading risk among several insurers (one of which is Aspen Specialty Insurance), and the relevant terms of each of the policies of RTG are essentially the same as those policies in question for SA Palm Beach, Emerald Coast and Rococo Steak. RTG included a claim that the detectable presence of coronavirus particles on various types of surfaces caused “direct physical damage” to its properties. All but one of the policy provisions under which the four companies requested coverage (variously referred to as the additional business income and expense, extended business income, business interruption, additional expense, contingent business interruption, civil authority, entry/exit, and loss adjustment expense) required, either alone or by reference to other provisions, that there is “direct physical loss or damage” to property or “direct physical loss or damage” to property.

The Eleventh Circuit ruled that under Florida law, district courts properly granted motions to dismiss policyholders’ claims because COVID-19 did not cause physical loss or damage to property. Covered. The court recognized Florida law that all-risk policies do not cover “all imaginable losses.” Sebo v. Am. Home Insurance Co., 208 So. 3d 694, 696–97 (Florida 2016). Noting the absence of Florida court decisions addressing the formulation of the direct physical loss or damage at issue, the court applied a presumption that the Florida Supreme Court would adopt “the majority opinion on a legal question in l ‘absence of contrary indications’. Bobo c. Tennessee Valley Auth., 855 F.3d 1294, 1304 (11th Cir. 2017). The court quoted the majority opinion as stated in the main treatise, couch on insurance, that a “physical” loss requirement excludes “intangible or intangible” losses and excludes claims for mere economic impact without “distinct and demonstrable physical alteration of the property”. Steven Plitt et al., 10A couch on insurance § 148:46 (3rd ed. and updated December 2021) (footnotes omitted). In a multi-page chain citation, the court questioned courts in other jurisdictions, finding that “any federal and state appellate court that has decided the meaning of ‘physical loss or damage to property’ ( or similar language) in the context of the COVID-19 pandemic came to the same conclusion and felt that a tangible change in ownership was necessary. Applying the majority opinion presumption, the court found that the Florida Supreme Court would agree.

The court went on to say that Florida law supported this majority position, discussing cases that a broken drain pipe and the destruction of a colony of bacteria integral to a sewage treatment facility were covered by physical loss or damage. The court also recognized an earlier unreported Eleventh Circuit decision in Mama Jo’s Inc. v. Sparta Insurance Co., 823 F. App’x 868 (11th Cir. 2020), as persuasive authority. In this case, the court held that the migration of dust and debris from a nearby road construction project did not cause direct physical loss or damage, as property that simply needed to be cleaned did not suffered no direct physical loss. “Like dust and debris in At mom Jo’s“, explained the Eleventh Circuit, “COVID-19 did not cause any material alteration of the properties of the insured. “

As for the provisions of the insurance policy covering a “suspension” or “interruption” of business activities, the court held that actual physical destruction or physical damage to the covered premises remains a precondition for coverage. Addressing RTG’s and Rococo Steak’s arguments that the COVID-19 particles themselves caused property damage, the court held that the complaints’ allegations do not allege direct physical loss or damage required. RTG’s claims were too specific, alleging that the “damage” was the existence of detectable coronavirus particles, which the court ruled was simply not physical harm. Rococo Steak’s claim, on the other hand, that COVID-19 “caused direct physical loss and/or damage to covered premises”, was too conclusive to satisfy. Secondlyis the pleading standard. Finally, the court dismissed Emerald Coast’s supplemental claim based on a policy provision that does not include the terms “direct physical loss or damage to” the property or “direct physical loss or damage to” the property, as the district court did not address this claim. in his revocation order below.

The decision continues a string of victories for insurers in litigation related to pandemic-related losses. Earlier this year, the court ruled Ascent Hospitality Management Co. v. Employers Insurance Co. of Wausau, 2022 US app. LEXIS 1161 (11th Cir. Jan. 14, 2022), ruling that under New York law, an all-risk insurance policy does not cover lost profits incurred due to government restrictions related to COVID-19, because the policy only covered “direct physical loss or damage”. .” And just a few months before the Ascent case, the court decided Gilreath Family & Cosmetic Dentistry, Inc. v Cincinnati Insurance Co.U.S. Application 2021. LEXIS 26196 (11th Cir. Aug. 31, 2021), holding that there is no coverage under all-risk insurance policies for physical loss or damage under Georgia straight.