520 F.Supp.3d 933
N.D. Ohio2021Background
- Plaintiffs MIKMAR, Inc. and Michael’s Inc. (hotel + adjoining banquet/catering business) submitted business-income claims to Westfield after COVID-19-related shutdowns; Westfield denied coverage.
- Policies at issue provide Business Income/Extra Expense and Civil Authority coverage only for loss caused by “direct physical loss of or damage to” covered property; they do not define that phrase.
- Policies also contain multiple exclusions, notably a broad virus exclusion barring loss “directly or indirectly” from any virus, and exclusions for governmental action and loss of use/market.
- Plaintiffs allege COVID-19 and state shutdown orders caused “direct physical loss or damage” (or at least loss of use) and that the virus exclusion is inapplicable or ambiguous; they asserted declaratory judgment, breach of contract, and bad-faith claims and sought class treatment.
- Westfield moved to dismiss; the court held (on the pleadings) that the policy language unambiguously requires tangible/material physical harm, Civil Authority coverage did not apply, and the virus exclusion barred recovery; claims dismissed and Westfield granted summary judgment on its counterclaims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether “direct physical loss of or damage to” property includes loss of use from COVID-19/shutdowns | Term is ambiguous; “physical loss” can mean deprivation or property rendered unfit for intended use, so loss of use qualifies | Plain meaning requires tangible/material harm or destruction; no such physical alteration here | Court: phrase unambiguous — requires tangible/material physical loss or damage; loss of use alone is not covered |
| Whether Civil Authority coverage applies (closure orders/prohibitions) | Government orders that limited access/operations trigger Civil Authority coverage | Civil Authority requires damage to other property + prohibition of access within area and a Covered Cause of Loss; those conditions are unmet | Court: Civil Authority coverage not triggered — no alleged physical damage to other property and access was not completely prohibited as the policy requires |
| Whether the virus exclusion bars coverage | Exclusion ambiguous; virus on premises did not necessarily cause illness or is not the proximate cause | Exclusion plainly covers any loss "directly or indirectly" caused by a virus; SARS-CoV-2 qualifies | Court: Virus exclusion is plain and unambiguous and precludes coverage for Plaintiffs’ alleged losses |
| Whether Plaintiffs’ causes of action survive (declaratory judgment, breach, bad faith) | Denial of coverage wrongful if policy construed to cover loss of use; bad faith for wrongful denial | Denial was legally justified under policy language and exclusions | Court: All claims dismissed — no coverage means no contract breach or bad-faith liability; declaratory relief denied |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: complaint must state a plausible claim)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard and plausibility framework)
- Mastellone v. Lightning Rod Mut. Ins. Co., 884 N.E.2d 1130 (Ohio Ct. App. 2008) ("physical injury" to property requires harm affecting structural integrity)
- Universal Image Prods. v. Federal Ins. Co., [citation="475 F. App'x 569"] (6th Cir. 2012) (interpreting "physical loss" to mean tangible physical losses, not mere economic loss)
- Perry v. Allstate Indem. Co., 953 F.3d 417 (6th Cir. 2020) (choice-of-law/application of Ohio contract/insurance principles; ambiguity rule)
- Sharonville v. American Emps. Ins. Co., 846 N.E.2d 833 (Ohio 2006) (insurance policy interpretation is a question of law to be decided from the policy language)