Seventh Circuit Says Business Interruptions Policies Did Not Cover COVID-Related Losses
- December 17, 2021
The Seventh Circuit is the latest federal appeals court to hold that an insurer’s business interruptions policy did not cover losses insureds incurred as a result of COVID-related suspensions of operations.
In the consolidated action, which involved three different businesses, including a private dental practice, the Seventh Circuit held that the loss of use, without any physical alteration to property, did not constitute “direct physical loss” under the relevant insurance policies.
Four other federal appeals courts—the Sixth, Eighth, Ninth, and Eleventh Circuits—have reached the same conclusion in actions seeking recovery under similar policies.
Sandy Point Dental, P.C.and two other businesses closed or scaled back operations following a series of executive orders in Illinois aimed at slowing the spread of COVID-19. For example, as a result of the orders, Sandy Point suspended elective and routine dental services that comprise 95% of its business and limited its practice to emergency services.
The three businesses had commercial property insurance policies sold by the Cincinnati Insurance Company. The policies covered income losses stemming from a suspension of operations caused by “direct physical loss” to covered property or as a result of an action of civil authority prohibiting access to covered property taken in response to “direct physical loss” suffered by other property.
Each business sought coverage under its policy, which Cincinnati Insurance denied. The district courts in the three cases denied relief sought by the plaintiff businesses, holding that they failed to allege that COVID, or the resulting closure orders, caused “direct physical loss” to property.
The appeals court affirmed, joining other federal circuits in rejecting the businesses’ loss-of-use theory in the COVID-related cases.
“This is not to say that no circumstances can exist under which a loss of use, unaccompanied by any physical alteration to property, might be so pervasive as effectively to qualify as a complete physical dispossession of property and thus a ‘direct physical loss,’” the appeals court said, noting as an example where gas infiltration renders a property completely uninhabitable. The appeals court emphasized that the resolution of these types of cases depends on the specific facts and policies at issue.
Sandy Point Dental, P.C. v. The Cincinnati Ins. Co., No. 21-1186 (7th Cir. Dec. 9, 2021).