513 F.Supp.3d 808
N.D. Ohio2021Background
- Plaintiffs are a group of restaurant operators who closed or curtailed dine‑in operations in March 2020 in response to state COVID‑19 orders and submitted a business‑income claim under Zurich commercial policy No. CPO 6220911‑06.
- The Policy’s Business Income coverage requires loss from a “necessary suspension” caused by “direct physical loss of or damage to property”; it also contains a broad Microorganism exclusion and a Loss‑of‑Market/Delay exclusion.
- Parties stipulated there was no known or confirmed COVID‑19 infection at any insured premises, and there was no physical structural damage to the properties during the relevant period.
- The parties filed cross‑motions for summary judgment: Plaintiffs sought a declaration of coverage; Zurich argued no coverage because there was no physical loss/damage and because exclusions (Microorganism, Loss of Market) bar recovery; Zurich also sought summary judgment on Plaintiffs’ bad‑faith claim.
- The court concluded the Policy language is ambiguous and, construing ambiguities for the insured, granted summary judgment to Plaintiffs on coverage (Counts I and III), denied Plaintiffs’ motion on bad faith (Count II), and granted Zurich summary judgment on the bad‑faith claim; the court certified the coverage ruling on Count I for interlocutory appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "direct physical loss of or damage to property" covers business interruption from COVID‑19 government closure orders | Phrase includes loss of possession/use (not limited to structural/physical alteration); closures deprived plaintiffs of the property’s intended use | Requires tangible/structural physical harm; mere loss of use or temporary dispossession is not "physical loss" | Policy is ambiguous; construed for insured → coverage for business‑income loss granted |
| Whether the Microorganism exclusion bars coverage | Exclusion does not apply because premises were not contaminated; closures were caused by government orders, not by microorganisms on insured property | COVID‑19 was the underlying cause of the economic loss and exclusion expressly bars loss directly or indirectly caused by microorganisms | Exclusion does not apply here: parties stipulated no COVID‑19 presence at premises and exclusion not interpreted to reach government closures in these facts |
| Whether Civil Authority coverage applies (order prohibiting access within one mile due to physical loss/damage) | Not necessary to reach because general Business Income coverage applies | Argues orders did not prohibit access and civil‑authority element (physical loss nearby) not satisfied | Court did not decide Civil Authority provision — unnecessary given ruling on general Business Income coverage |
| Whether insurer acted in bad faith by denying coverage | If coverage exists, insurer’s denial could be unreasonable and bad faith discovery may be needed | Denial was reasonable given existing caselaw and split authority; insurer had plausible justification | Zurich entitled to summary judgment on bad‑faith claim because denial was reasonably justified by conflicting precedent |
Key Cases Cited
- Mastellone v. Lightning Rod Mut. Ins. Co., 884 N.E.2d 1130 (Ohio Ct. App. 2008) (interpreting "physical loss" as requiring physical injury affecting structural integrity)
- Universal Image Prods., Inc. v. Fed. Ins. Co., [citation="475 F. App'x 569"] (6th Cir. 2012) (no covered physical loss where air quality/bacterial contamination affected premises)
- Schmidt v. Travelers Indem. Co. of Am., 101 F. Supp. 3d 768 (S.D. Ohio 2015) (no "direct physical loss of or damage to" where loss involved fraudulent cashier's checks, not physical damage)
- Zoppo v. Homestead Ins. Co., 71 Ohio St.3d 552 (Ohio 1994) (bad‑faith standard for insurer denials requires absence of reasonable justification)
- Westfield Ins. Co. v. Galatis, 100 Ohio St.3d 216 (Ohio 2003) (insurance policy language is given its plain and ordinary meaning)
- Potti v. Duramed Pharm., Inc., 938 F.2d 641 (6th Cir. 1991) (summary‑judgment interpretation of ambiguous contract language governed by choice‑of‑law/conflict principles)