Brunswick Panini's, LLC v. Zurich American Insurance Company, 520 F.Supp.3d 965

Background

Plaintiffs Brunswick Panini’s, LLC and Kent Entertainment Group operated restaurants in Ohio and held a Zurich Property Portfolio Protection policy for May 10, 2019–May 10, 2020.
Plaintiffs ceased in-person dining after Ohio Department of Health and stay-at-home orders in March 2020 and claimed Business Income, Extra Expense, and Civil Authority coverage for COVID-19 losses; Zurich denied the claims.
The Policy covers losses caused by "direct physical loss of or damage to" property, contains a Civil Authority provision triggered by orders issued in response to physical loss within one mile, and includes a Microorganism Exclusion (which expressly excludes loss caused by viruses and expenses to respond to microorganisms).
Plaintiffs alleged SARS-CoV-2 presence and loss of use of their premises and argued the virus or government orders constituted a covered "direct physical loss"; they sought declaratory relief, breach of contract, and bad faith claims and proposed a nationwide class.
Zurich moved to dismiss under Rule 12(b)(6), arguing plaintiffs failed to plausibly allege direct physical loss or damage and that the Microorganism Exclusion bars coverage; Zurich also argued bad-faith claim fails if coverage is absent or denial was reasonable.
The court granted Zurich’s motion, finding no plausible allegation of direct physical loss or damage, that loss-of-use and government orders do not satisfy the policy’s physical-loss requirement, and that the Microorganism Exclusion independently defeats coverage; it dismissed all counts and denied remand and a stay.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether plaintiffs plausibly alleged "direct physical loss of or damage to" insured property	Virus presence and government orders caused deprivation/loss of use of premises—loss of use qualifies as direct physical loss	Policy requires tangible, physical alteration or loss; plaintiffs allege only economic loss or restricted use	Court: no; allegations insufficient—"direct physical loss or damage" requires physical/tangible loss and plaintiffs pleaded only loss of use/economic injury
Whether "loss of use" (deprivation of enjoyment/access) satisfies the policy threshold	Loss of use is a deprivation akin to physical loss and should be covered	Loss-of-use is excluded elsewhere in policy and does not equate to physical alteration	Court: loss of use does not meet the policy’s "direct physical" requirement and is inconsistent with policy language (including Loss of Market/Delay exclusion)
Applicability of the Microorganism Exclusion	Even if a covered loss existed, exclusion should not bar claims where government orders—not virus contamination—caused the loss	COVID-19 is a "microorganism"; exclusion bars losses caused directly or indirectly by viruses and also excludes costs from orders to respond to microorganisms	Court: exclusion applies—COVID-19 is a microorganism and the orders/claimed losses were caused or induced by the microorganism, so coverage is precluded
Viability of bad-faith claim	Zurich acted unreasonably by denying coverage and refused reasonable interpretation	Denial was reasonable given (1) lack of alleged physical loss and (2) applicable Microorganism Exclusion; no coverage, so no bad faith	Court: dismissed bad-faith claim—denial was reasonably justified and no coverage exists

Key Cases Cited

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (establishes the plausibility standard for pleading)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (clarifies Twombly and limits conclusory allegations at pleading stage)
Mastellone v. Lightning Rod Mut. Ins. Co., 175 Ohio App.3d 23 (2008) (mold/"physical injury" analysis: intangible or temporary effects do not constitute physical injury)
Universal Image Prods., Inc. v. Federal Ins. Co., [citation="475 F. App'x 569"] (6th Cir. 2012) (business interruption claim failed where losses were economic/odor-based, not tangible physical loss)
Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm, 73 Ohio St.3d 107 (1995) (undefined policy terms are given ordinary meaning)
Zoppo v. Homestead Ins. Co., 71 Ohio St.3d 552 (1994) (bad-faith claim requires insurer acted without reasonable justification)