Corporate Law

Can businesses recover for pandemic losses? 8th Circuit is first federal appeals court to rule

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An Iowa dental clinic can’t recover for COVID-19 "business interruption" losses under an insurance policy that covers "accidental physical loss or accidental physical damage," a federal appeals court has ruled.

The 8th U.S. Circuit Court of Appeals at St. Louis ruled Friday against Oral Surgeons PC in a July 2 opinion, report Westlaw Insurance Daily Briefing, Reuters, Bloomberg Law and Law360.

The 8th Circuit is the first federal appeals court to rule on a business interruption claim related to the COVID-19 pandemic, according to the news coverage.

Oral Surgeons’ insurance 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.

Oral Surgeons had sued its insurer, the Cincinnati Insurance Co., for losses caused by a government order that forced it to stop performing nonemergency services. The dental clinic maintained that the order constituted a direct physical loss to its property because it was unable to fully use its four offices in the Des Moines, Iowa, area.

The appeals court noted that the insurance policy covered lost business and income during a “period of restoration” until the premises are “repaired, rebuilt or replaced” or when the business relocates.

That language “assumes physical alteration of the property, not mere loss of use,” the appeals court said.

The suit did not claim that COVID-19 was actually present on the property. Scott Greenspan of Pillsbury Winthrop Shaw Pittman told Law360 that the lack of a contamination allegation means that the impact of the ruling is limited.

“This decision is not the end of the story but the beginning,” he said.

Other lawyers and experts said the impact is limited because the 8th Circuit was determining how an Iowa state court would rule.

The case is Oral Surgeons PC v. the Cincinnati Insurance Co.

See also: “Insurers rack up early wins in lawsuits over COVID-19 ‘business interruption’ coverage” “Coronavirus pandemic prompts wave of ‘business interruption’ lawsuits by restaurants” “Nearly 300 federal suits stem from pandemic; 101 ‘business interruption’ cases filed; what’s next?”

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