17 F.4th 645
6th Cir.2021Background
- In March 2020 Ohio ordered child-care programs (including Dakota Girls’ sixteen preschools) to close to limit COVID-19 spread; Dakota Girls lost expected income and claimed coverage under its commercial policies.
- The policies contained four potentially relevant provisions: (1) building/personal-property ("direct physical loss or damage"), (2) business-income (loss during suspension caused by direct physical loss or damage), (3) civil-authority (loss caused by a government order due to damage at another location), and (4) a communicable-disease / water‑borne‑pathogen endorsement triggered by a shutdown order due to an outbreak that "causes an actual illness at the described premises."
- Philadelphia Indemnity denied coverage; Dakota Girls sued for breach of contract and bad faith. The district court dismissed. On appeal Dakota Girls conceded Santo’s Italian Café controlled rejection of the first three coverages, so the dispute on appeal focused on the communicable‑disease endorsement.
- Dakota Girls alleged only that individuals with symptoms "consistent with" COVID‑19 had been on premises but admitted it had no confirmed COVID diagnoses; it also alleged no facts tying Ohio’s statewide closure order to any illness at its locations.
- The Sixth Circuit applied Ohio contract law and federal pleading standards (Twombly/Iqbal) and held the communicable‑disease endorsement required an ‘‘actual illness’’ at the insured premises and that Dakota Girls failed plausibly to plead such an illness or that the statewide order was issued "due directly" to anything at its schools; dismissal was affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Whether property, business‑income, and civil‑authority coverages are triggered by a government shutdown that causes loss of use ("direct physical loss or damage"). | Dakota Girls: "loss" includes loss of use; COVID presence damaged surfaces so "damage." | Philadelphia: "loss" means destruction or dispossession; "damage" requires tangible physical alteration. | Court: Santo’s controls; "loss of use" and economic loss are not "direct physical loss" or "damage." Coverage denied. |
| 2. Whether the communicable‑disease endorsement requires an "actual illness" at the insured premises or whether a shutdown ordered for a communicable disease generally is sufficient. | Dakota Girls: The clause modifies only "water‑borne pathogen" (last‑antecedent), so "actual illness" need not apply to "communicable disease." | Philadelphia: The phrase is an integrated list; context shows "actual illness" qualifies both "communicable disease" and "water‑borne pathogen." | Court: Applies integrated‑clause principle; endorsement requires an actual illness from the communicable disease at the insured premises. |
| 3. Whether Dakota Girls plausibly alleged an "actual illness" from COVID‑19 at its premises and that the statewide shutdown was "due directly" to such an illness. | Dakota Girls: Testing was scarce early on; pleading symptoms consistent with COVID suffices or could be alleged on information and belief. | Philadelphia: Allegations of symptoms only are conclusory; no confirmed cases; the Director’s order was prophylactic and not tied to any particular facility. | Court: Allegations of mere symptoms are insufficient under Iqbal/Twombly; no plausible allegation that the order was issued due to illness at Dakota Girls’ premises. |
| 4. Whether policy ambiguity, virus exclusion, or insurer waiver/bad faith saves Dakota Girls’ claim. | Dakota Girls: Terms ambiguous and should be construed for insured; insurer’s disinfecting reimbursement letter implied waiver. | Philadelphia: Contract terms have ordinary meaning; reservation‑of‑rights prevented waiver; bad‑faith requires arbitrary, capricious denial. | Court: No ambiguity; reservation preserved rights so no waiver; bad‑faith claim fails because Dakota Girls never established entitlement to coverage. |
Key Cases Cited
- Santo’s Italian Café v. Acuity Ins. Co., 15 F.4th 398 (6th Cir. 2021) (treats "direct physical loss" and "damage" as requiring dispossession/destruction or tangible physical alteration)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility pleading standard)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must contain enough facts to state a plausible claim)
- Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018) (last‑antecedent rule inapplicable to concise integrated clauses)
- Jama v. Immigration & Customs Enforcement, 543 U.S. 335 (2005) (interpretive guidance on modifying phrases)
- Wohl v. Swinney, 113 Ohio St. 3d 277 (Ohio 2008) (describing last‑antecedent presumption under Ohio law)
- Cincinnati Ins. Co. v. CPS Holdings Inc., 115 Ohio St. 3d 306 (Ohio 2007) (contract construed as whole; ordinary meaning controls)
- Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm, 73 Ohio St. 3d 107 (Ohio 1995) (absence of a definition does not alone create ambiguity)