Fourth Circuit says insurance doesn’t cover COVID-related losses

In a published decision filed March 7, 2022, the United States Court of Appeals for the Fourth Circuit of Uncork and Create LLC Vs Cincinnati Insurance Companyupheld the judgment of the U.S. District Court for the Southern District of West Virginia dismissing the case, finding that the unambiguous terms of an insurance policy did not allow companies to recoup lost revenue resulting from the coronavirus pandemic. COVID-19.

As of March 2020, Uncork and Create LLC (Uncork) operated two business locations in West Virginia. However, due to the emergence of COVID-19, the governor declared a state of emergency and issued an executive order requiring non-essential businesses in West Virginia to temporarily cease operations. In compliance, Uncork closed its two sites and suffered a substantial loss of business revenue. One site reopened, but the other remained permanently closed. Uncork filed a claim with its insurer under its commercial property policy for loss of income from its business, but the claim was dismissed as there was no evidence of “direct physical loss or damage”. at Uncork property, as required by the police. Uncork filed a class action lawsuit with similarly situated businesses, arguing that the loss of use and access to its business satisfied the wording of the policy. The district court granted the insurer’s motion to dismiss, finding that neither the closure nor COVID-19 caused “physical loss or physical damage” under the terms of the policy. Uncork appealed.

On appeal, the Fourth Circuit upheld the district court, finding that the policy terms are unambiguous and backed by West Virginia law. When considering the ordinary meaning of “physical loss” or “physical damage” as used in the policy, the terms relate to natural or material things in the state of being destroyed or placed beyond recovery ( destruction, ruin). Therefore, the need to repair, rebuild or replace the property is a prerequisite for covering lost business income and other expenses. Any other meaning that does not require material modification of the property would render the terms and conditions precedent meaningless. Furthermore, the Court recognized that the West Virginia case of Murray vs. State Farm Fire & Casualty Company coverage required for physical loss where there was a present or imminent threat of property damage, which was not present at Uncork sites. Uncork’s “lost” access to its property was limited to the number of people working in the space and depended on whether or not members of the public were invited into the space. It is important to note that the property suffered no property damage or destruction as no repairs or replacements were required to use the property as intended. For this reason, Uncork’s closure, due to the circumstances surrounding COVID-19, was not covered by its policy, and the Court upheld the District Court’s denial of its request for coverage.