Eighth Circuit Says Business Interruptions Policy Did Not Cover Iowa Dental Clinic’s COVID-Related Losses
- July 09, 2021
The Eighth Circuit held July 2 that an Iowa dental clinic’s business interruptions policy did not cover losses it incurred as a result of the COVID-related suspension of non-emergency procedures.
The closely watched decision marks the first by a federal appeals court to address whether businesses can recover under insurance policies for losses stemming from the pandemic.
Between March 2020 and May 2020, Oral Surgeons, PC stopped performing non-emergency procedures at its four offices in the Des Moines, IA area after the state imposed restrictions on dental practices because of the COVID-19 pandemic.
Oral Surgeons submitted a claim to The Cincinnati Insurance Company for the resulting losses under a policy covering lost business income and certain extra expenses sustained due to the suspension of operations “caused by direct ‘loss’ to property.” Oral Surgeons argued the government-imposed restrictions on performing non-emergency dental procedures was a “direct ‘loss’ to property” because it could not fully use its offices.
But the company denied coverage finding no direct physical loss or physical damage to Oral Surgeon’s property under the policy. Oral Surgeons sued the insurer in court. The district court granted the company’s motion to dismiss.
The Eighth Circuit affirmed, holding the policy unambiguously requires a direct “physical loss” or “physical damage” to trigger business interruption and extra expense coverage. “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 appeals court said.
Requiring the loss or damage to be physical in nature also was consistent with the policy’s “period of restoration” language, which ends coverage when the “premises” is “repaired, rebuilt or replaced” or until business resumes elsewhere.
The appeals court concluded that the policy clearly did not provide coverage for Oral Surgeon’s partial loss of use of its offices “absent a showing of direct physical loss or physical damage.”
Oral Surgeons, P.C. v. The Cincinnati Ins. Co., No. 20-3211 (8th Cir. July 2, 2021).