540 F.Supp.3d 441
D. Vt.2021Background:
- Plaintiff Associates in Periodontics purchased an all-risk commercial policy from Cincinnati providing Business Income, Extra Expense, Dependent Property, Extended Business Income, and Civil Authority coverages, triggered by "accidental physical loss or accidental physical damage."
- Vermont issued COVID-19 emergency orders (including suspension of elective dental services) that forced Plaintiff, a periodontal practice, to cease most operations from March to June 2020.
- Plaintiff alleged SARS-CoV-2 contaminated the premises (air and surfaces), making the property unsafe and unusable, and submitted a claim for lost income and extra expense.
- Cincinnati denied coverage and moved to dismiss under Rule 12(b)(6); the case was transferred to the District of Vermont.
- The court applied Vermont law on insurance interpretation and surveyed pandemic-related decisions nationally, noting a majority hold that transient viral contamination does not constitute "physical loss or damage."
- The court concluded Plaintiff failed to plausibly allege physical loss or damage and granted Cincinnati’s motion to dismiss.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether COVID-19 contamination constitutes "physical loss or physical damage" under the Policy | Virus is a physical substance that attached to and remained on surfaces/air, rendering property unsafe and unusable | Policy requires an actual, demonstrable, physical alteration or enduring harm to property (not transient contamination) | Virus contamination did not cause the required physical loss or damage; no coverage |
| Whether "loss of use" satisfies the "physical" requirement | Loss of use of premises (unable to practice dentistry) is a physical loss triggering coverage | Loss of use absent physical alteration is economic and not "direct" or "physical" loss | Loss-of-use theory fails without physical alteration; no coverage |
| Whether Civil Authority coverage applies because government orders closed businesses | Governor’s closure of elective dental services prohibited Plaintiff’s business operations, so civil authority coverage should apply | Civil Authority coverage requires physical loss or damage to other property that prompted the order; Plaintiff alleges no such physical loss | Civil Authority coverage not triggered because no physical loss to other property and access was not physically prohibited |
| Whether an "all-risk" policy and omission of a virus exclusion broaden coverage | "All-risk" should cover harms not specifically excluded; absence of virus exclusion supports coverage | "All-risk" does not mean all losses; coverage remains limited to risks the policy actually covers; omission of exclusion does not create coverage | Omission of virus exclusion is irrelevant: the Policy’s unambiguous physical-loss requirement bars coverage |
Key Cases Cited
- City of Burlington v. Indem. Ins. Co. of N. Am., 332 F.3d 38 (2d Cir. 2003) (interpreting "physical loss or damage" to require changing property from a satisfactory to an unsatisfactory state)
- Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 488 F. Supp. 3d 690 (N.D. Ill. 2020) ("direct physical loss" requires actual physical harm to premises)
- Studio 417, Inc. v. Cincinnati Ins. Co., 478 F. Supp. 3d 794 (W.D. Mo. 2020) (denying dismissal where complaint alleged virus attached to and rendered premises unusable)
- Sentinel Mgmt. Co. v. New Hampshire Ins. Co., 563 N.W.2d 296 (Minn. 1997) (contamination by asbestos fibers can constitute physical loss)
- Isbrandtsen v. N. Branch Corp., 556 A.2d 81 (Vt. 1988) (a disputed interpretation does not automatically create an ambiguity that favors the insured)