11th Circuit Adds to Plaintiff Losing Streak for COVID Business Interruption Claims

Another federal appellate court has ruled against a policyholder who sought coverage for business interruption losses caused by coronavirus restrictions, siding with the vast majority of federal judges in ruling that SARS-CoV-2 does not cause a direct physical loss or damage to property.

A panel of the US 11th Circuit Court of Appeals on Tuesday affirmed a decision by the U.S. District Court for Northern Georgia to dismiss Gilreath Family & Cosmetic Dentistry against the Cincinnati Insurance Co.

“Gilreath finds it problematic that its office is an enclosed space where viral particles tend to linger, and where patients and staff must interact with each other in close quarters,” the unsigned and unpublished opinion says. “Even so, we do not see how the presence of those particles would cause physical damage or loss to the property.”

This was the second appellate court decision that found no coverage was owed because of COVID-related business interruptions. A panel of the 8th Circuit Court of Appeals on July 2 affirmed a trial court decision to dismiss a similar claim filed by Oral Surgeons PC against Cincinnati Insurance.

That ruling hinged on a slightly different issue, however. The 8th Circuit panel ruled that government orders that forced a dental practice to curtail its operations did not cause a physical loss or damage to the property. The court did not address whether coverage would be owed if the virus was actually present on the property.

The Gilreath dental practice in Marietta, Georgia alleged that it had to curtail its operations because of an order by civil authorities and also because the virus tends to linger in the airspace within a building, causing a loss of use.

The 11th Circuit panel, however, said the Georgia Court of Appeals ruled in a 2003 case that coverage is not owed unless there is an actual change to the insured property that makes the property unsuitable for use. It cited AFLAC Inc. v. Chubb & Sons, where the court affirmed a judgment that no coverage was owed to AFLAC as reimbursement after it was forced to upgrade its computer system to avoid a failure on Jan, 1, 2000 (Y2K).

“Gilreath has alleged nothing that could qualify, to a layman or anyone else, as physical loss or damage,” the 11th Circuit panel said.

A litigation tracker maintained by the University of Pennsylvania’s Carey Law School shows that 2,014 lawsuits have been filed in state and federal courts seeking insurance coverage for COVID-19 business interruptions.

As for Wednesday afternoon, federal courts had granted motions to dismiss in 383 of 410 cases heard, or 93%. Plaintiffs are doing better in state court, where 75 out of 109 cases have been dismissed in initial hearings, or 69%, according to the litigation tracker.

The litigation tracker shows that plaintiff wins are becoming fewer and farther apart as time goes on. In August, state and federal courts dismissed 46 COVID lawsuits against insurers and denied dismissal motions in only three cases. The court in Cook County, Illinois dismissed six business interruption lawsuits filed against Society Insurance Co. on Aug. 24.

According to the tracker, 184 appeals were pending in federal courts as of Wednesday and 57 cases were pending in state appellate courts.

The most recent outlier decision was issued on Aug. 16, when a state court judge in Clark County, Nevada denied a motion to dismiss a lawsuit filed by Wynn Resorts. The company, which owns two hotels in Las Vegas with more than 4,000 rooms, alleged that it has purchased a policy from Factory Mutual with a limit of $2.25 billion that included coverage for “communicable diseases.” The insurer argued that at most only $1 million was owed because of a sublimit in the policy.