U.S. District Judge Dan A. Polster of the Northern District of Ohio initially sided with the plaintiffs, concluding that under Ohio law, Zurich’s policy was “ambiguous” and “susceptible of more than one interpretation,” the opinion said. (Credit: Renars 2013/Shutterstock)

The U.S. Court of Appeals for the Sixth Circuit has sided with an insurance company after they denied an insured’s COVID-19 business interruption claim. This verdict comes as the wait continues for a ruling from the Ohio Supreme Court as to what “direct physical loss of or damage to property” means in regard to these cases.

In the present case, the plaintiffs own and operate restaurants in Ohio, Indiana, Florida, Michigan and Pennsylvania. All filed claims with Zurich American Insurance Co. to recover lost business income they attributed to government orders restricting in-person dining in an effort to stop the spread of COVID-19, according to the circuit court’s opinion filed June 13.

Zurich denied the plaintiffs’ claim because they had not suffered “physical loss or damage to” their buildings, the opinion said.

U.S. District Judge Dan A. Polster of the Northern District of Ohio initially sided with the plaintiffs, concluding that under Ohio law, Zurich’s policy was “ambiguous” and “susceptible of more than one interpretation,” the opinion said.

Zurich appealed and the circuit court panel vacated Polster’s order and remanded it for reconsideration in light of the Sixth Circuit’s decision in Santo’s Italian Café LLC v. Acuity Insurance, holding 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.’”

Polster ultimately entered summary judgment in favor of Zurich. Then, the plaintiffs appealed.

“The Ohio Supreme Court has not yet opined on the question of what ‘direct physical loss of or damage to property’ means. We, however, recently examined nearly identical policy language under Ohio law, specifically with regard to the COVID-19 pandemic … we concluded that the unambiguous policy language required a plaintiff to demonstrate ‘either destruction of the property or the owner’s dispossession to show “loss” and a direct physical alteration of the property to show “damage,”” Judge R. Guy Cole Jr. wrote on behalf of the panel, citing language from the Sixth Circuit’s 2021 ruling in Dakota Girls LLC v. Philadelphia Indemnity Insurance, which in turn had quoted Santo’s.

In January 2021, an Ohio district court judge asked the state high court to decide on a COVID-19 business interruption claim filed by an audiology company, Neuro-Communication Services Inc., against The Cincinnati Insurance Co. As of Wednesday, an opinion from the Ohio Supreme Court was not filed.

The Massachusetts Supreme Judicial Court and the Iowa Supreme Court became the first state high courts in the country in April to decide whether businesses can recover COVID-19-related business losses under their insurance policies.

Falling in line with a number of federal jurisdictions that have weighed in on the issue, both state supreme courts held that the mere loss of use of a business does not constitute “direct physical loss or damage to” within the meaning of the insurance policy provisions. Therefore, coverage is not triggered and the insurance companies are off the hook from such payments, the court opinions said.

In the case against Zurich, the plaintiffs “insist that their policy is distinguishable,” and that Santo’s does not apply. They claim because they were “deprived … of their ability to use the insured premises for in-person dining,” that they “lost” their property because they “lost ‘their right under the[ir] leases to ‘enjoy’ operating the Insured Premises as fine dining establishments with in-person dining,’” the opinion said.

“Regardless of whether ‘loss’ means ‘deprivation’ or ‘failing to keep possession’ or whether ‘property’ includes leaseholds or buildings, this court has squarely determined that ‘direct physical loss of’ property does not mean what [plaintiffs] say[] it means,” Cole wrote. “It refers to the direct physical loss of property, not the use of property.”

Messages seeking comment were not immediately returned from Sean Koran of Sonkin & Koberna on behalf of the plaintiffs, nor from Patrick Hofer, partner at Clyde & Co., for the insurance company.

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