For Business Interruption Coverage there Must be Direct Physical Damage

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After a trial court concluded that Zurich American must go to trial over a business interruption claim due to Covid shutdowns Zurich appealed to the Sixth Circuit Court of Appeal that, in Santo’s Italian Café LLC v. Acuity Ins. Co., No. 21-3068, ___ F.4th ____, at *3 (6th Cir. Sept. 22, 2021) and in In re: Zurich American Insurance Company, USCA, Sixth Circuit, Case: 1:20-cv-01239-DAP Doc #: 23 Filed : 09/30/21 that there must be direct physical loss of or damage to property.

The district court granted summary judgment to Plaintiffs on the insurance coverage issues asserted in their claims for breach of contract (Count I) and declaratory judgment (Count III), granted summary judgment to Zurich on Plaintiffs’ claim for bad faith denial of coverage (Count II), and certified the legal issue in Count I for interlocutory appeal under 28 U.S.C. § 1292(b).

The parties agreed that Zurich raises at least one controlling question of law for appeal: whether the policy’s coverage for “direct physical loss of or damage to property” applies to Plaintiffs’ loss of business income due to COVID-19-related government shutdown orders that halted their dine-in operations. The parties also agreed that resolution of this question may materially affect Zurich’s liability and, thus, the outcome of the litigation below.

The Sixth Circuit, since the trial court’s decision against Zurich, held, however, that “a pandemic-triggered government order, barring in-person dining at a restaurant” does not qualify as “‘direct physical loss of or damage to’ the property” under Ohio law: Santo’s Italian Café LLC v. Acuity Ins. Co., No. 21-3068, ___ F.4th ____, at *3 (6th Cir. Sept. 22, 2021).

Accordingly, the petition for permission to appeal is GRANTED, the district court’s order is VACATED as to the insurance coverage issue alleged in Counts I and III, and the case is REMANDED for further proceedings consistent with this order and deny the plaintiffs’ motion.

ZALMA OPINION

These two decisions by the Sixth Circuit should stop trial courts – feeling sorry for the people losing money as a result of the governments’ actions forcing them to close their businesses and lose money. They tried to collect from their insurers and almost universally the courts have found no coverage in the U.S. No matter how sad their losses are the contract terms are clear and unambiguous and must be applied. Of course, the plaintiffs’ can try to sue the governmental entity that shut them down because it was an uncompensated taking in violation of the Fifth Amendment to the U.S. Constitution as applied to the States and Cities by the 14th Amendment.