35 F.4th 1322
11th Cir.2022Background
- Dukes Clothing operated two Alabama retail stores that closed during the COVID-19 pandemic due to state orders and a customer exposure, causing lost business income.
- Dukes held an all-risk Cincinnati policy (2018–2021) with Business Income coverage payable if a suspension was caused by direct “accidental physical loss or accidental physical damage.”
- Dukes submitted a claim; Cincinnati denied it, asserting no direct physical loss or damage because the virus does not tangibly alter property and can be removed by cleaning.
- Dukes sued for breach of contract, bad faith, and negligence; the magistrate judge dismissed under Rule 12(b)(6), finding no alleged physical loss or damage.
- The Eleventh Circuit affirmed, applying Alabama law and Eleventh Circuit precedent that “physical loss or damage” requires a tangible alteration and that COVID-19 causes only intangible harm or temporary loss of use.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether “accidental physical loss or accidental physical damage” covers COVID-19–related business losses | Dukes: all-risk policy covers losses not expressly excluded; COVID-19 is a causative agent of property damage | Cincinnati: virus does not cause tangible alteration; removable by cleaning; policy requires physical/tangible change | No — policy requires tangible alteration; COVID-19 and pandemic-related closures do not constitute direct physical loss or damage |
| Whether bad faith and negligence claims survive after denial | Dukes: insurer acted in bad faith and failed to investigate | Cincinnati: denial was legally justified because no coverage | Dismissed — because there is no underlying coverage, the tort claims cannot proceed |
Key Cases Cited
- SA Palm Beach, LLC v. Certain Underwriters at Lloyd’s London, 32 F.4th 1347 (11th Cir. 2022) (held “physical loss or damage” requires tangible alteration; no COVID coverage)
- State Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293 (Ala. 1999) (insurer policy interpreted as whole; ambiguity is a question of law)
- Travelers Cas. & Sur. Co. v. Ala. Gas Corp., 117 So. 3d 695 (Ala. 2012) (ambiguities in policy construed for the insured)
- Crook v. Allstate Indem. Co., 314 So. 3d 1188 (Ala. 2020) (undefined policy terms given ordinary-meaning construction)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility pleading standard for Rule 12(b)(6) reviews)