The Eleventh Circuit has provided some clarity to Florida businesses and their insurers dealing with COVID-19 claims. In Mama Jo’s Inc., d.b.a. Berries v. Sparta Ins. Co., No. 18-12887 (11th Cir. March 18, 2020), the Court held that a restaurant’s lost income and extra cleaning costs due to nearby roadwork did not trigger coverage because it did not involve direct physical loss or damage.
In the underlying case pending in the Southern District of Florida, Mama Jo’s, Inc. v. Sparta Ins. Co., 17-CV-23362-KMM, 2018 WL 3412974, at *9 (S.D. Fla. June 11, 2018), the Court considered whether there was a direct physical loss when construction debris and dust from road work required the insured to clean its floors, walls, tables, chairs, and countertops. The Court held unequivocally that “cleaning is not considered direct physical loss.” Id. The Court stated: “A direct physical loss ‘contemplates an actual change in insured property then in a satisfactory state, occasioned by accident or other fortuitous event directly upon the property causing it to become unsatisfactory for future use or requiring that repairs be made to make it so.’” Id. Because the insured’s claim did not involve any direct physical loss, the district court granted summary judgment to the insurer.
The insured appealed to the Eleventh Circuit, and on appeal, the insured argued that: (a) the policy’s “direct physical loss” requirement could be satisfied by showing that the property was rendered uninhabitable or unusable; and (b) the policy’s business income coverage provisions did not require the insured to show that a suspension of operations was the result of physical damage. Mama Jo’s Inc., d.b.a. Berries v. Sparta Ins. Co., No. 18-12887, Slip Op. at 14 (11th Cir. March 18, 2020).
Applying Florida law to the insured’s claims, the Eleventh Circuit held that neither the insured’s claim for cleaning the restaurant nor its claim for business income loss triggered coverage under the policy. As to the insured’s cleaning claim, the Eleventh Circuit concluded that, under Florida law, an item or structure that merely needs to be cleaned has not suffered a “loss” which is both “direct” and “physical.” Id. at 23. As to the insured’s business income loss claim, the Eleventh Circuit noted that the policy’s Business Income Coverage Form required that a “suspension” of operations “be caused by direct physical loss of or damage to property.” Id. Because the insured failed to show that it suffered a direct physical loss of or damage to its property during the policy period, the Eleventh Circuit concluded that no coverage was triggered for the insured’s business income loss. Id. Finally, the Eleventh Circuit found that the district court correctly granted summary judgment on the insured’s business income claim because its “suspension” of operations that occurred when it had been required to close sections of the restaurant for cleaning was not caused by “direct physical loss of or damage to property.” Id. at 24. Accordingly, the Eleventh Circuit affirmed the district court’s grant of summary judgment in favor of the insurer.
This case has direct implications for Florida businesses seeking coverage for business interruption losses under their property insurance policies due to COVID-19. Based on the Eleventh Circuit’s analysis, coverage will not be triggered for similar claims because the presence of the COVID-19 virus, or cleaning related to the virus, does not constitute direct physical loss or damage to property. The Eleventh Circuit’s holding provides helpful guidance that will most certainly be used in the analysis of COVID-19 business interruption claims.