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Seventh Circuit Continues String of Insurer Victories in COVID-19 Enterprise Interruption Litigation


No less than 5 Circuit Courts of Enchantment have now come out in favor of insurers in COVID-19 enterprise interruption lawsuits.[1] The newest is the Seventh Circuit Court docket of Appeals in Sandy Level Dental, P.C. v. Cincinnati Ins. Co., 2021 U.S. App. LEXIS 36399 (seventh Cir. Dec. 9, 2021). The Court docket in Sandy Level resolved three claims in a single opinion beneath Illinois regulation. The three plaintiffs have been a dentistry apply, a lodge, and restaurant. Every enterprise was allegedly impacted by orders issued by Illinois’ governor to stem the unfold of COVID-19.

Every of the companies’ insurance policies included a well-known protection threshold of a “suspension” brought on by direct bodily “loss” to property at a premises brought on by or ensuing from a Coated Reason for Loss. “Loss” was outlined within the insurance policies as “unintended loss or injury.” The Court docket noticed that by “incorporating the acknowledged definition of ‘loss,’ the [b]usinesses have been lined for revenue losses ensuing from direct bodily loss or direct bodily injury to property. Thus, to outlive [the insurer’s] Rule 12(b)(6) movement, they wanted to allege that both the virus or the ensuing closure orders precipitated direct bodily loss or direct bodily injury to lined property.”

The Court docket started by reviewing the which means of “direct bodily loss.” The Court docket noticed that the Illinois Supreme Court docket had not addressed the exact coverage language but it surely had addressed related language. In that case addressing related language, the Illinois Supreme Court docket held that “the time period ‘bodily harm’ unambiguously connotes … an alteration in look, form, shade or in different materials dimension.” The Court docket noticed that many courts have relied on such evaluation to carry that “direct bodily loss” requires a bodily alteration to property.

The companies requested for a extra expansive interpretation of the coverage language. They argued that “direct bodily loss” includes not solely bodily alterations but in addition lack of use. They posited that within the phrase “direct bodily loss or injury,” the phrase “loss” should imply one thing totally different from “injury” or the language could be redundant. They argued that “loss” refers to deprivation of use or possession whereas “injury” refers to bodily alteration of property. The companies additionally identified that the insurance policies had no virus exclusion they usually made a convoluted argument relating to the character of the insurance policies’ exclusions.

The Court docket acknowledged that “we now have no quarrel with the concept that the disjunctive signifies that ‘loss’ means one thing totally different from ‘injury.’” However the Court docket identified that the phrases “direct bodily” are most sensibly learn as modifying each “loss” and “injury.” In any other case, the phrase “bodily” is learn out of the insurance policies, which is improper. The Court docket additionally rejected varied arguments by the companies primarily based on the context of the insurance policies. As a substitute, the Court docket noticed that the insurance policies present protection for losses throughout a “interval of restoration” which is outlined by references to dates that property must be repaired, rebuilt, or changed. “With out bodily alteration to property,” the Court docket noticed, “there could be nothing to restore, rebuild, or change.” Thus, the Court docket made it clear that it was becoming a member of the “overwhelming majority” of courts adopting this interpretation of the insurance policies’ provisions.

The Court docket then turned to the companies’ particular person allegations. The Court docket held that the dentistry apply’s amended allegations didn’t adequately allege a “direct bodily loss.” The dentistry apply alleged that coronavirus was current, made the premises unsafe and unfit for its meant use, and thereby precipitated bodily loss or injury. The Court docket was extremely essential that the dentistry apply didn’t even try to explain bodily alteration. The Court docket opined that diminished use of premises or incapability to make most well-liked use of the premises was not sufficient to state a declare. The Court docket then made an statement much like that of many different Courts: “Whereas the impression of the virus on the world over the past 12 months and a half can hardly be overstated, its impression on bodily property is inconsequential: lethal or not, it might be wiped off surfaces utilizing ordinarily cleansing supplies, and it disintegrates by itself in a matter of days.”

The Court docket disposed of comparable allegations by the lodge and eating places. The eating places additionally made assertions that coronavirus allegedly altered the air and droplets hooked up to property. Related assertions have been made by many different insureds and decided to be mere hypothesis. Certainly, the Eleventh Circuit commented that it couldn’t “see how the presence of [viral] particles would trigger injury or loss to the property.”[2]  The Court docket noticed that such assertions don’t adequately allege a “direct bodily loss.”

The Court docket concluded by explaining that the companies wanted to allege greater than a partial lack of their most well-liked use of the insured property. They didn’t make such allegations, nor did they allege bodily alteration or deprivation of use or entry so substantial as to represent a bodily dispossession.   Trying on the greater image, a number of different Circuit Courts of Enchantment are nonetheless to weigh in on these points. For instance, within the Fifth Circuit, the outcomes of the appeals in Terry Black’s Barbecue, LLC v. State Vehicle Insurance coverage Firm and Aggie Investments, LLC v. Continental Casualty Firm are awaited. The insurer prevailed in each of these instances on the trial courtroom stage. Additionally it is notable that a lot of high-profile dismissals weren’t appealed. For instance, the plaintiff in Univ. of Saint Thomas v. Am. Residence Assur. Co., 2021 U.S. Dist. LEXIS 137528 (S.D. Tex. July 23, 2021) didn’t enchantment. State appellate courts, which appear to be shifting slower than federal courts, additionally have to weigh in on these points.

[1] See, e.g., Santo’s Italian Café, LLC v. Acuity Ins. Co., 15 F.4th 398 (sixth Cir. Sept. 22, 2021); Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 1141 (eighth Cir. July 2, 2021); Mudpie, Inc. v. Vacationers Ins. Co. of Am., 15 F.4th 885 (ninth Cir. Oct. 1, 2021); Gilreath Household & Beauty Dentistry, Inc. v. Cincinnati Ins. Co., 2021 U.S. App. LEXIS 26196 (eleventh Cir. Aug. 31, 2021).

[2] Gilreath, 2021 U.S. App. LEXIS at *6.

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