32 F.4th 1347
11th Cir.2022Background
- In March 2020 Florida state and local COVID-19 closure orders forced many businesses (restaurants, bars, retail) to suspend on-premises operations; insureds submitted claims under commercial all-risk policies.
- Four insureds (SA Palm Beach, Emerald Coast, Rococo Steak, and Rooms‑To‑Go) sued after insurers denied coverage under policy provisions requiring "direct physical loss of or damage to" covered property to trigger Business Income/Extra Expense and related coverages.
- District courts dismissed the complaints for failure to plead a direct physical loss or damage; plaintiffs alleged loss of use and, in some complaints, the presence of coronavirus particles on surfaces.
- The Eleventh Circuit consolidated appeals, reviewed de novo, and predicted how the Florida Supreme Court would decide the unsettled question of whether the policy trigger covers COVID‑19‑related losses.
- The court adopted the majority approach: coverage requires a tangible, demonstrable physical alteration of the property; mere loss of use or need for cleaning/disinfection is not enough.
- The court affirmed dismissals as to SA Palm Beach, Rococo, and RTG; it affirmed in part and vacated in part as to Emerald Coast and remanded only the Spoilage claim for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does "direct physical loss of or damage to" cover loss of use without tangible alteration? | Loss of use/functional impairment (closure orders) suffices to trigger coverage. | Policy requires a tangible, physical alteration; economic loss alone is not "physical loss." | Court: No—Florida law (as predicted) requires a tangible alteration; loss of use alone is not covered. |
| Does presence of COVID‑19 particles on surfaces constitute physical damage? | Virus contamination physically impairs value/usefulness and thus damages property. | Contamination that can be removed by cleaning is not tangible damage; allegations are conclusory. | Court: No—allegations of contamination/need to clean do not allege the tangible alteration required. |
| Does policy language about "repair, rebuild or replace" (period of restoration) imply a physical‑repair precondition for business‑income coverage? | Plaintiffs: disjunctive wording and suspension definitions suffice; no repair requirement. | Insurers: repair/rebuild language shows the trigger contemplates physical repair—loss of use would nullify that condition. | Court: Yes—the repair/rebuild language supports the conclusion that material alteration is required to trigger business‑income coverage. |
| Is Emerald Coast's Spoilage provision (which does not use the same trigger language) sufficient to survive dismissal? | Spoilage coverage insures perishable stock contaminated/spoiled by covered causes. | District court did not rule; insurers moved to dismiss. | Court: Remanded — vacated dismissal in part and returned Spoilage claim to district court for initial consideration. |
Key Cases Cited
- Uncork & Create LLC v. Cincinnati Ins. Co., 27 F.4th 926 (4th Cir. 2022) (adopts majority rule that "physical loss or damage" requires tangible alteration)
- Q Clothier New Orleans, LLC v. Twin City Fire Ins. Co., 29 F.4th 252 (5th Cir. 2022) (same; loss of use insufficient)
- Mama Jo’s Inc. v. Sparta Ins. Co., [citation="823 F. App'x 868"] (11th Cir. 2020) (applying Florida law: cleaning/painting needs do not constitute direct physical loss)
- Homeowners Choice Prop. & Cas. v. Maspons, 211 So. 3d 1067 (Fla. 3d DCA 2017) (interprets "direct" and "physical" to require actual, tangible damage)
- Azalea, Ltd. v. Am. States Ins. Co., 656 So. 2d 600 (Fla. 1st DCA 1995) (tangible residue adhered to structure and required remediation; held to be physical injury)