581 F.Supp.3d 385
D. Conn.2022Background
- Plaintiffs are a Connecticut children’s hospital and medical practice insured under a property policy that covers losses caused by “direct physical loss of or damage to covered property.”
- COVID-19 prompted plaintiffs to suspend elective/nonessential services, sanitize, and reconfigure facilities; they claim imminent risk or presence of SARS‑CoV‑2 caused direct physical loss/damage.
- Plaintiffs seek coverage under Business Interruption, Extra Expense, and a Disease Contamination endorsement (which requires an evacuation or decontamination order by public health authorities directed at a location).
- Defendants moved to dismiss for failure to state a claim, arguing the policy requires physical alteration or loss of property and that no evacuation/decontamination orders specific to plaintiffs’ locations were alleged.
- Court concluded plaintiffs’ allegations—(1) loss of use, (2) transient viral contamination, and (3) generalized public-health orders—do not plausibly allege “direct physical loss or damage” or an authorizing decontamination/evacuation order, and granted dismissal with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs alleged “direct physical loss or damage” for Business Interruption/Extra Expense coverage | Presence or imminent threat of SARS‑CoV‑2 on property causes physical loss/damage | Policy requires tangible, physical alteration or loss to property; mere interruption or contamination is not enough | No — complaint fails to plead direct physical loss or damage plausibly |
| Whether “loss of use” of premises suffices as a “direct physical loss” | Loss of use from pandemic or orders is a distinct form of physical loss covered by policy | “Loss” and “damage” have different ordinary meanings (destruction vs. repairable harm); loss of use alone is not a physical loss under the policy | No — loss‑of‑use theory rejected as inconsistent with plain meaning and precedent |
| Whether transient viral contamination constitutes “physical damage” | SARS‑CoV‑2 is a physical substance that physically alters property when deposited | Virus does not cause tangible, structural alteration; contamination is removable by cleaning, not repair/replacement | No — courts require tangible, perceptible alteration; transient virus presence insufficient |
| Whether Disease Contamination coverage applies | Government COVID‑related orders constitute decontamination/evacuation orders triggering coverage | Policy requires a specific evacuation/decontamination order directed at the insured location; plaintiffs allege only generalized orders and voluntary cleaning | No — plaintiffs did not allege any location‑specific evacuation/decontamination order; claim fails |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must allege facts to state a plausible claim)
- Karas v. Liberty Ins. Corp., 335 Conn. 62 (2019) (insurance-contract terms construed like other contracts; unambiguous language enforced)
- R.T. Vanderbilt Co. v. Hartford Accident & Indem. Co., 333 Conn. 343 (2019) (contract interpretation principles under Connecticut law)
- Capstone Building Corp. v. American Motorists Ins. Co., 308 Conn. 760 (2013) (escape of gas without tangible alteration does not constitute property damage)
- 10012 Holdings, Inc. v. Sentinel Ins. Co., Ltd., 21 F.4th 216 (2d Cir.) (direct physical loss requires actual physical damage; loss of use insufficient)
- Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 20 F.4th 327 (7th Cir.) (interpreting “direct physical loss or damage” and rejecting broad loss‑of‑use reading)
- Chief of Staff LLC v. Hiscox Ins. Co. Inc., 532 F. Supp. 3d 598 (N.D. Ill.) (rejected loss‑of‑use and transient contamination theories under analogous policies)