29 F.4th 252
5th Cir.2022Background
- Q Clothier (nine stores) purchased commercial property insurance effective June 19, 2019–June 19, 2020 and closed stores after Louisiana and New Orleans COVID-19 orders, losing business income.
- Policy covers losses caused by "direct physical loss of or physical damage to property," includes a Business Income (time‑element) extension and a Civil Authority extension, but contains a broad Virus Exclusion with a narrow Limited Virus Coverage exception tied to certain listed causes.
- Q submitted claims for business‑income losses; insurer (Twin City) denied coverage under the policy and invoked the Virus Exclusion; Q sued in the Eastern District of Louisiana.
- The district court granted the insurer’s Rule 12(c) motion, concluding Q failed to allege a direct physical loss or damage, the Civil Authority extension did not apply, and the Virus/Limited‑Virus provisions did not provide coverage.
- On appeal, the Fifth Circuit affirmed, holding (1) "direct physical loss of or damage to property" requires tangible alteration, injury, or deprivation; (2) Civil Authority coverage requires orders issued as a direct result of covered property damage nearby; and (3) Limited Virus/Time‑Element provisions do not apply here.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "direct physical loss of or physical damage to property" is triggered by government‑ordered COVID closures | Q: Orders and COVID‑19 presence caused loss of use and thus physical loss | Twin City: No tangible alteration or physical injury to property occurred | Held: Phrase means tangible alteration, injury, or deprivation; closures alone do not qualify |
| Whether Civil Authority extension covers closures | Q: Orders were issued because of COVID contamination risks near premises, so coverage applies | Twin City: Orders were issued to control pandemic, not as direct result of covered property damage nearby | Held: No plausible allegation that orders were a direct result of covered property damage in the immediate area; coverage not triggered |
| Whether Virus Exclusion is avoided by Limited Virus Coverage exception | Q: Limited Virus Coverage exception applies, providing time‑element relief | Twin City: Exception applies only if virus resulted from a listed "specified cause of loss" or equipment breakdown and physical loss occurred | Held: Limited Virus Coverage not applicable—no listed cause alleged and no physical loss alleged; Virus Exclusion bars coverage |
| Whether subsection (B)(1)(f) (Time Element within Limited Virus Coverage) creates independent coverage | Q: Subsection provides time‑element payment for suspensions caused by virus | Twin City: Subsection is conditional—requires Time Element Coverage to apply and a two‑step triggering sequence; neither is alleged | Held: Subsection does not create independent coverage here; Business Income time‑element not triggered |
Key Cases Cited
- Trinity Indus., Inc. v. Ins. Co. of N. Am., 916 F.2d 267 (5th Cir. 1990) ("physical loss or damage" implies alteration from a prior satisfactory state)
- Terry Black’s Barbecue, L.L.C. v. State Auto. Mut. Ins. Co., 22 F.4th 450 (5th Cir. 2022) (closure orders for COVID‑19 do not constitute "direct physical loss" under similar policies)
- Dickie Brennan & Co. v. Lexington Ins. Co., 636 F.3d 683 (5th Cir. 2011) (civil‑authority coverage requires nexus between order and property damage nearby)
- Widder v. La. Citizens Prop. Ins. Corp., 82 So. 3d 294 (La. Ct. App. 2011) (contamination rendering property unusable can constitute direct physical loss)
- In re Chinese Manufactured Drywall Prods. Liab. Litig., 759 F. Supp. 2d 822 (E.D. La. 2010) (defective drywall producing gases required removal/replacement and was treated as a physical loss)
- Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th 885 (9th Cir. 2021) (virus exclusion barred coverage where COVID‑19 was efficient cause of business‑closure losses)