On June 26, 2023, a panel of judges for the United States Court of Appeals for the Ninth Circuit affirmed an insurance company’s win over a restaurant group seeking insurance coverage for pandemic-related claims in Team 44 Restaurants, LLC v. American Insurance Company, No. 22-15403.

Plaintiffs owned various individual restaurants, who sought insurance coverage under business insurance policies. The defendant insurance companies denied coverage for COVID-19 losses under government shutdowns, on the basis that there was no direct physical loss to the restaurants.

The district court dismissed the case and denied leave to amend as futile.  The court held that temporary loss of use due to government regulations was not covered by the “direct physical loss of or damage to property” provision of Plaintiffs’ insurance policies.

The interpretation of the policy at issue was subject to Arizona law, and the panel found that the Arizona Supreme Court would interpret the insurance policies to find that there was no direct physical loss or damage caused by the governmental restrictions due to COVID-19.

The panel also agreed with the district court that amendment would have been futile, interpreting the “reasonable expectations” doctrine under Arizona law. The panel found that the reasonably intelligent, average insured would not have expected coverage due to governmental shutdown orders when those orders did not physically alter the Plaintiffs’ property. The panel also held that the Plaintiffs had adequate notice of the terms because they received copies of the insurance policy.

The panel rejected an argument that statements by the Plaintiffs’ broker were reasonably attributable to the insurer because the brokers were not Defendants’ agents.

This unpublished opinion follows a long line of district courts and Circuit decisions finding no insurance coverage was required for losses due to COVID-19 governmental shutdowns affective restaurants. Although these shutdowns caused a huge financial loss for the insured restaurants, the policies only covered direct physical loss or damage.