Courts in seemingly every jurisdiction are facing a wave of insurance coverage litigation arising out of the COVID-19 pandemic which requires them to address the extent to which typical business insurance policies apply (or not) to our decidedly atypical times. With little appellate guidance to date, courts across the country have reached different, and often irreconcilable, results. A series of recent federal court cases in Ohio has put the challenge (for courts, counsel, and parties alike) on full display. Below, we discuss two cases that reached opposite results based on similar facts, and a third that chose to refer the question to the Ohio Supreme Court.
Henderson Road Restaurant Systems, Inc. v. Zurich American Insurance Co.1
On January 19, 2021, a federal court in Cleveland, Ohio granted partial summary judgment in favor of a restaurant, holding that the restaurant was entitled to coverage for losses under the restaurant’s “business interruption” insurance policy due to the government’s temporary shutdown of restaurants. The restaurant’s insurance policy provided for coverage when there is “direct physical loss of or damage to ‘real property’….”2 The court held that this language was ambiguous because “loss of” could include loss of access to the property, and therefore would not require actual physical loss or damage to the property.3 In so holding, the court distinguished cases involving policy language that said “loss to,” which other courts have held requires tangible physical damage.4 In light of the ambiguity in the phrase “loss of,” and in view of Ohio’s rule (similar to many other states) that ambiguities in insurance policies are construed in favor of the insured, the court held that the restaurant was covered by the business interruption policy.5
The court also held that exclusions to coverage did not apply, most importantly an exclusion for losses caused by “microorganisms.” The court reasoned that the “microorganisms” exclusion did not apply because the restaurant’s alleged losses were caused by government orders, not by COVID-19 itself.6
The court authorized the parties to appeal from all parts of the decision, even the “non-final” portions that are not normally eligible for immediate appeal, because the decision “involves a question of law that will control the outcome of Plaintiffs’ breach of contract claim.”7 No notice of appeal has been filed as of yet, so it remains to be seen whether the court’s decision will be the final word on these issues in this case.
Neuro-Communication Services, Inc. v. The Cincinnati Insurance Company8
On the same day that Henderson Road was decided, a federal court in Youngstown, Ohio was confronted with similar insurance policy language. Consistent with the holdings of most courts that have examined the “loss of” or “loss to” physical property language, the court impliedly held that the insured could not recover absent a showing of direct, physical damage.9 Rather than decide whether COVID-19 or the presence of someone infected with COVID-19 at a business premises constitutes physical loss of or damage to property, the court certified that question to Ohio’s Supreme Court.10 The court explained that allowing the Ohio Supreme Court to answer that question would “bring uniformity to the application of state law to these policies.”11
As of this writing, the Ohio Supreme Court has not yet held oral argument or issued a decision on the certified question.
Equity Planning Corporation v. Westfield Insurance Company12
In contrast to Henderson Road, a third Ohio federal court recently answered, at least for itself, the question that the Neuro-Communications court posed to the Ohio Supreme Court. In this case, the court addressed a landlord who was seeking coverage under its insurance policies based on the loss of use of its properties when its non-essential tenants were forced to close and could not pay rent.
The insurance policies in question provided coverage for “direct physical loss of or damage to property.”13 The court sided with the majority of courts to address this issue in finding that economic losses resulting from the pandemic do not constitute “direct physical loss of or damage to property.”14 The court reasoned that the language requires “complete tangible, material destruction or deprivation of insured property” or “a partial tangible, material destruction of insured property.”15 The court expressly considered, but rejected, the Henderson Road decision, holding that it “respectfully disagrees with the Henderson Road court’s determination” based upon the plain meaning of the insurance language and pre-pandemic Ohio case law.16 The court also acknowledged that the Neuro-Communication court had certified the question of whether pandemic-related losses constitute “direct physical loss of or damage to property” to the Ohio Supreme Court, but opted not to wait for the Ohio Supreme Court’s decision and answered the coverage question, in the negative, based on its own interpretation of the policy and applicable law.17
These cases illustrate the struggle for courts even in the same jurisdiction as they evaluate how to apply typical insurance coverage provisions in the context of the COVID-19 pandemic. For now, the jurisprudence remains conflicting, but federal appellate courts and state supreme courts may soon provide more definitive answers. We will continue to monitor these cases and other cases across the country that address the issue of insurance coverage in the context of the pandemic.
1. Case No. 1:20-cv-1239, 2021 U.S. Dist. LEXIS 9521 (N.D. Oh. Jan. 19, 2021).
2. Id. at *26.
3. Id. at *26-33.
5. Id. at *33-38.
6. Id. at *38-44. Compare Studio 417, Inc. v. The Cincinnati Insurance Co., 478 F.Supp.3d 794, 802 (W.D.Mo. 2020) (holding that the insured’s allegation that COVID-19 was “likely” present at its premises was sufficient to allege an actual physical loss to their property).
7. 2021 U.S. Dist. LEXIS 9521 at *2-3.
8. Case No. 4:20-cv-1275, 2021 U.S. Dist. LEXIS 20069 (N.D. Oh. Jan. 19, 2021).
9. Id. at *3-5.
10. Id. at *3.
11. Id. at *5-6.
12. Case No. 20-cv-1204, 2021 U.S. Dist. LEXIS 36452 (N.D. Oh. Feb. 26, 2021).
13. Id. at *5-11.
14. Id. at *17-31. The Eastern District of New York recently reached the same conclusion in a COVID-19 related insurance coverage dispute involving identical language, i.e., requiring “direct physical loss of or damage to property.” Alexandre B. Demoura, M.D. v. Continental Casualty Co., 20-CV-2912 (NGG) (SIL), 2021 WL 848840, at *6 (E.D.N.Y. March 5, 2021). In that case, the court found that plaintiff failed to “allege that the virus was, in fact, present in his business” or allege “that the potential presence of the virus caused ‘physical harm’ to [plaintiff’s] property.” Id. As such, the court held there was no “direct physical loss of or damage to property,” which would be covered by the insurance policy. Id.
15. 2021 U.S. Dist. LEXIS 36452, at *28.
16. Id. at *38-44.
17. Id. at *31 n.1.