Crescent Plaza Hotel Owner, L. v. Zurich American Insurance Com, 20 F.4th 303

Crescent Plaza Hotel Owner, L.P. (owner of the Ritz‑Carlton Dallas) sued Zurich under two commercial property policies issued to Marriott, asserting COVID‑19 caused loss of use and business‑income losses and led to mitigation expenses.
Dallas County COVID‑19 orders limited in‑person services (restaurant dining, spa, gym) but allowed lodging with social‑distancing; Crescent alleges the virus made hotel air unsafe and reduced usable space.
Zurich issued a 2019 policy (coverage generally conditioned on “direct physical loss or damage”) and a 2020 policy that added a communicable‑disease exclusion; both policies contain a broad microorganism exclusion.
District court granted Zurich’s Rule 12(b)(6) motion, holding “direct physical loss or damage” requires physical alteration or injury; Crescent appealed.
Seventh Circuit affirmed: (1) loss of use without physical alteration does not satisfy “direct physical loss or damage,” and (2) the microorganism exclusion unambiguously covers viruses like SARS‑CoV‑2, independently barring coverage.
Court noted Crescent conceded the 2020 communicable‑disease exclusion bars recovery under that policy, and Zurich conceded coverage for canceled bookings under a separate 2019 provision (up to the policy limit).

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether “direct physical loss or damage” covers loss of use without physical alteration	Loss of use and diminished functionality from viral contamination constitute a direct physical loss/damage	Term requires physical alteration, injury, or dispossession—mere loss of use is not enough	Court: No—requires physical change or physical injury; loss of use alone insufficient (affirming dismissal)
Whether the microorganism exclusion covers COVID‑19 (virus)	Viruses are not necessarily "microorganisms" for ordinary meaning; exclusion shouldn't bar virus‑caused losses	Ordinary meaning and policy context include viruses; exclusion is broad and bars losses related to microorganisms	Court: Exclusion unambiguously covers viruses and thus independently bars coverage

Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading must state a plausible claim)
Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for complaints)
Ochoa v. State Farm Life Insurance Co., 910 F.3d 992 (7th Cir. 2018) (de novo review of 12(b)(6) dismissal)
Windridge of Naperville Condominium Ass’n v. Philadelphia Indemnity Ins. Co., 932 F.3d 1035 (7th Cir. 2019) (insurance policy interpretation under Illinois law)
Founders Insurance Co. v. Munoz, 930 N.E.2d 999 (Ill. 2010) (ambiguity requires more than party disagreement)
Cincinnati Insurance Co. v. Flanders Electric Motor Service, Inc., 40 F.3d 146 (7th Cir. 1994) (multiple dictionary definitions do not necessarily create ambiguity)
Great West Casualty Co. v. Robbins, 833 F.3d 711 (7th Cir. 2016) (overlap/redundancy in insurance drafting is common and not dispositive)
Addison Insurance Co. v. Fay, 905 N.E.2d 747 (Ill. 2009) (insured first shows coverage, then insurer bears burden to prove exclusions apply)