504 F.Supp.3d 1191
D. Kan.2020Background
- Plaintiff Promotional Headwear International (wholesale apparel distributor in Johnson County, KS) suspended operations and claimed ~95% sales loss after COVID‑19 spread and state/local Stay‑at‑Home Orders.
- Plaintiff carried an all‑risk commercial property policy covering "direct ‘loss’ to Covered Property" defined as "accidental physical loss or accidental physical damage," plus business income, civil authority, ingress/egress, and Sue & Labor provisions.
- Plaintiff alleged likely contamination of its premises by SARS‑CoV‑2 and notified insurer Cincinnati, which sought more information and denied coverage; plaintiff sued for declaratory relief and breach of contract.
- Defendant moved to dismiss under Fed. R. Civ. P. 12(b)(6); court considered the policy and stay‑at‑home orders attached to the complaint.
- The court found plaintiff’s allegations did not plausibly plead a "direct physical loss or damage" to covered property, nor the prerequisites for civil authority or ingress/egress coverage, and dismissed the complaint with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiff alleged a "direct physical loss or damage" to covered property | "Physical loss" includes loss of use/access or likely viral contamination of premises; virus absence from exclusions implies coverage | "Direct physical loss/damage" requires tangible, material alteration or contamination of property; temporary loss of use is economic only | Court: No. Policy's modifiers "direct" and "physical" unambiguously require actual/tangible change or intrusion; allegations of likely contamination speculative and insufficient |
| Whether civil authority coverage applies | Stay‑at‑Home Orders issued in response to COVID‑19 deprived plaintiff access and therefore trigger civil authority coverage | Civil authority coverage requires (1) damage to other property from a covered cause and (2) civil authority action that prohibits access as a result of that damage; orders here did not prohibit access to plaintiff's premises | Court: No. Complaint fails to plead covered damage to surrounding property or that orders "prohibited" access; Orders permitted certain travel and did not mandate closure |
| Whether ingress/egress or Sue & Labor provisions provide coverage | Ingress/egress triggered by prevented access; Sue & Labor covers expenses to protect property | Ingress/egress requires direct loss at contiguous location preventing ingress/egress; Sue & Labor is a duty/claim‑handling clause, not coverage | Court: No. Plaintiff failed to identify contiguous property with direct loss or prevented ingress/egress; Sue & Labor is not a coverage provision |
| Whether policy language is ambiguous (absence of virus exclusion) | Ambiguity exists; omissions (no virus exclusion) should be construed for the insured | Policy terms are clear; omission of virus exclusion does not create ambiguity | Court: No ambiguity. "Direct physical loss/damage" plain; absence of virus exclusion irrelevant if no covered loss alleged |
Key Cases Cited
- Mama Jo’s, Inc. v. Sparta Ins. Co., [citation="823 F. App'x 868"] (11th Cir. 2020) (cleaning/decontamination needs do not establish "direct physical loss" where no tangible alteration)
- Pentair, Inc. v. Am. Guar. & Liab. Ins. Co., 400 F.3d 613 (8th Cir. 2005) (loss of use without physical contamination or alteration is not "physical loss")
- Source Food Tech., Inc. v. U.S. Fid. & Guar. Co., 465 F.3d 834 (8th Cir. 2006) (transport embargo without contamination is not "direct physical loss")
- Great Plains Ventures, Inc. v. Liberty Mut. Fire Ins. Co., 161 F. Supp. 3d 970 (D. Kan. 2016) ("physical damage" commonly means physical alteration)
- S. Hospitality, Inc. v. Zurich Am. Ins. Co., 393 F.3d 1137 (10th Cir. 2004) (civil authority coverage requires a direct nexus and that access be "prohibited")
- TRAVCO Ins. Co. v. Ward, 715 F. Supp. 2d 699 (E.D. Va. 2010) (physical force rendering property unusable can constitute "direct physical loss")
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (Rule 12(b)(6) plausibility standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (two‑step plausibility/labels‑and‑conclusions framework)