Hurricane Ian Shoreline Loss: Four Policies, Oh Joy!
October 19, 2023
On July 2, 2021, in the case of Oral Surgeons, P.C. v. Cincinnati Ins. Co., No. 20-3211, the U.S. Court of Appeals for the Eighth Circuit issued its first opinion on Covid-19 business interruption litigation, rejecting an insured’s arguments for coverage due to loss of use related to restrictions in governmental orders. Applying Iowa law, the Court found that the Policy at issue required physical loss or damage to property to trigger coverage, which was not alleged in the insured’s complaint.
In Oral Surgeons, the insured oral surgery services company in Des Moines, Iowa stopped performing non-emergency procedures in March 2020 after governmental orders in response to the Covid-19 pandemic were issued that placed restrictions on dental services. The insured was able to begin offering emergency services again in May 2020 after those restrictions were lifted, adhering to guidance from the Iowa Dental Board.
The insured submitted a claim to The Cincinnati Insurance Company (“Cincinnati”) for its losses as a result of suspending non-emergency procedures under its property policy. The Policy provided coverage for lost business income and extra expense due to the suspension of operations “caused by direct ‘loss’ to property.” The Policy defined “loss” as “accidental physical loss or damage.” Cincinnati denied the claim on the basis that there was no physical loss or damage to the insured’s property.
The Eighth Circuit affirmed the Southern District of Iowa’s decision to dismiss the complaint. The insured argued that the pandemic and the restrictions imposed by the governmental orders constituted a direct “loss” to property because it was unable to fully use its offices. The Court rejected the insured’s argument, finding that the Policy required the insured’s loss to be “physical” in nature and did not cover loss of use with no physical loss or damage to property.
The Eighth Circuit noted that the insured did not allege any physical alteration to property. The insured alleged that it suspended non-emergency operations due to governmental order restrictions. The Court stated that the complaint alleged no facts to show that it had suspended activities due to “accidental physical loss or accidental physical damage.” (Emphasis in opinion.) In a footnote near the end of the opinion, the Court cited to a list of Iowa case law, noting that “Iowa state and federal courts have uniformly determined that the Covid-19 pandemic and the related government-imposed restrictions do not constitute direct physical loss.” Therefore, the Eighth Circuit affirmed the trial court’s decision to grant the motion to dismiss.
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