Just like the tidal wave of trial court decisions in favor of insurers in COVID-19 business interruption insurance coverage lawsuits, a similar wave of appellate decisions is now forming. In Dakota Girls LLC v. Philadelphia Indemnity Insurance Co., the Sixth Circuit Court of Appeals, applying Ohio law, affirmed the dismissal of a lawsuit brought by private preschools seeking coverage for alleged COVID-19-related business interruption losses. The Sixth Circuit held there was no coverage under the policies’ building and personal property, business interruption, and civil authority coverage provisions – provisions that have been addressed frequently in COVID-19 insurance coverage litigation. The Sixth Circuit also held that there was no coverage under the policies’ communicable disease coverage provision – a type of coverage provision that has been seen relatively less frequently in COVID-19 insurance coverage litigation.
With the Sixth Circuit’s ruling in Dakota Girls, there have now been at least 17 appellate rulings in favor of insurers in COVID-19 insurance coverage cases from a range of jurisdictions, including the U.S. Courts of Appeals for the Sixth, Seventh, Eighth, Ninth, and Eleventh Circuits as well as California and Ohio state appellate courts.
The Preschools’ Alleged Losses
At issue in Dakota Girls was an Ohio government order that allegedly required all child care programs to close for two months beginning in March 2020 to combat the spread of COVID-19. The plaintiff preschools in Dakota Girls alleged that this order required their preschools to temporarily close and that they sustained financial losses as a result. The preschools also alleged that people with symptoms “consistent with” COVID-19 had been present at the preschools.
Building and Personal Property, Business Interruption, and Civil Authority Coverage
The preschools sought coverage under the policies’ building and personal property, business interruption, and civil authority coverage provisions. Each of these provisions required direct physical loss of or damage to property for there to be coverage. Citing to its prior decision in the COVID-19 insurance coverage case of Santo’s Italian Cafe v. Acuity Insurance Co., 15 F.4th 398 (6th Cir. 2021), the Sixth Circuit held that there was no coverage under any of these three provisions because “the mere economic injury and loss of use that result from a shutdown order” does not constitute direct physical loss of or damage to property.
Communicable Disease Coverage
The preschools also sought coverage under the policies’ communicable disease coverage provision. This provision provided coverage for “the losses that result when the government orders a shutdown of business operations ‘due directly to an outbreak of a communicable disease or a water-borne pathogen that causes an actual illness at the described premises.'” The Sixth Circuit explained that, for this provision to be triggered, two requirements needed to be met. First, there needed to be an “actual illness” from COVID-19 at the covered preschools. Second, the government order needed to be issued in response to that particular incident of illness.
The Sixth Circuit held that the preschools failed to plausibly allege either prong, and thus there was no coverage. As to the first prong, the Sixth Circuit noted that the preschools conceded that they had no confirmation that a COVID-positive individual had actually been present at one of the preschools. Instead, the preschools had merely alleged that “[e]ach school had individuals on their premises with symptoms consistent with COVID-19.” The Sixth Circuit held it was insufficient to “allege only that individuals had symptoms ‘consistent with’ COVID” because “allegations that are ‘merely consistent with’ a defendant’s liability” are insufficient to state a claim for relief.
In finding that the preschools also failed to establish the second prong, the Sixth Circuit explained:
[The preschools] also never alleged that Ohio’s statewide shutdown order arose “directly” (or even indirectly) from an illness at the premises. Nor could [they] have. The Director of Health’s order was framed in general terms and applied to all “Facilities Providing Child Care Services.” It was also couched as a prophylactic measure “to avoid an imminent threat with a high probability of widespread exposure to COVID-19,” not as a response to a specific illness discovered at appellants’ preschools or anywhere else.
