In what appears to be the first substantive appellate ruling in COVID-19-related insurance coverage litigation, the Eighth Circuit Court of Appeals in Oral Surgeons, P.C. v. Cincinnati Insurance Co. ruled in favor of the insurer and affirmed the trial court’s order of dismissal under Iowa law.
The plaintiff in Oral Surgeons, a dental practice, allegedly sustained financial losses due to the COVID-19 pandemic and related government orders that temporarily restricted the plaintiff from providing non-emergency dental procedures. The plaintiff sought coverage for its alleged losses under a policy that provided coverage for lost business income and certain extra expense sustained due to the suspension of operations “caused by direct ‘loss’ to property.” The policy defined “loss” as “accidental physical loss or accidental physical damage.”
The Eighth Circuit held that the policy did not provide coverage because there had been no direct physical loss or damage to property. The Eighth Circuit explained: “The policy here clearly requires direct ‘physical loss’ or ‘physical damage’ to trigger business interruption and extra expense coverage. Accordingly, there must be some physicality to the loss or damage of property — e.g., a physical alteration, physical contamination, or physical destruction. 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 court further noted that “[t]he unambiguous requirement that the loss or damage be physical in nature accords with the policy’s coverage of lost business income and incurred extra expense during the ‘period of restoration.’” The policy defined the “period of restoration” as beginning at the time of “loss” and ending on the earlier of: “(1) the date when the property at the ‘premises’ should be repaired, rebuilt or replaced with reasonable speed and similar quality; or (2) the date when business is resumed at a new permanent location.” The Eighth Circuit explained: “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.”
In ruling in favor of the insurer, the Eighth Circuit rejected the plaintiff’s argument that “the policy’s disjunctive definition of ‘loss’ as ‘physical loss’ or ‘physical damage’ creates an ambiguity that must be construed against [the insurer].”
The court concluded by pronouncing: “The policy clearly does not provide coverage for [the plaintiff’s] partial loss of use of its offices, absent a showing of direct physical loss or physical damage. ‘[W]here no ambiguity exists, we will not write a new policy to impose liability on the insurer.’”