508 F.Supp.3d 186
N.D. Ohio2020Background
- Santo’s Italian Café (Ohio) operated a dine‑in restaurant and held a Bis‑Pak business policy issued by Acuity covering "direct physical loss of or damage to" covered property, Business Income/Extra Expense, and Civil Authority benefits, but containing a virus/bacteria exclusion.
- Ohio state and health officials issued COVID‑19 closure and stay‑home orders that halted Santo’s dine‑in operations (carry‑out allowed), causing substantial lost revenue.
- Santo’s alleged the pandemic and resulting Closure Orders made its premises "unsafe, dangerous and unfit for its intended use," asserting this constituted "direct physical property damage or physical loss," and submitted claims to Acuity; Acuity denied coverage (citing the pandemic/act of God and the virus exclusion).
- Santo’s sued for declaratory relief, breach of contract, and bad faith in Ohio state court; Acuity removed to federal court and moved to dismiss under Rule 12(b)(6).
- The court applied Ohio law, examined the policy language (including the Business Income, Civil Authority provisions, Period of Restoration definition, and virus exclusion), and considered whether Santo’s pleaded facts met the policy’s threshold and whether the virus exclusion would bar coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiff pleaded "direct physical loss of or damage to" property to trigger Business Income / Extra Expense coverage | Santo’s: loss of use/uninhabitability from Closure Orders (even without proof of virus on premises) satisfies "physical loss"; terms are disjunctive so "loss" can differ from "damage" | Acuity: phrase requires tangible, demonstrable physical alteration/structural harm; Closure Orders caused economic loss only, not physical damage | Court: Ohio law requires distinct, demonstrable physical alteration to show "physical" loss; Santo’s allegations insufficient → threshold not met. |
| Whether Civil Authority coverage was triggered by state Closure Orders | Santo’s: Orders prohibited access/use and were issued because COVID‑19 was present in the area, so Civil Authority coverage applies | Acuity: Civil Authority requires physical damage to other property and a prohibition of access; Santo’s neither alleges other property was physically harmed nor that access was totally prohibited | Court: Santo’s did not allege physical damage to other property or total prohibition of access → Civil Authority threshold not met. |
| Whether the policy's virus exclusion bars coverage even if threshold met | Santo’s: exclusion ambiguous and does not mention "pandemic"; losses were caused by governmental orders, not the virus directly | Acuity: exclusion unambiguously excludes loss caused directly or indirectly by any virus; Closure Orders were issued because of COVID‑19, so exclusion (and anti‑concurrent causation language) applies | Court: exclusion is unambiguous and applies to COVID‑19; because Closure Orders resulted from community spread of the virus, the exclusion bars coverage. |
| Whether plaintiff’s bad faith / waiver claims survive | Santo’s: insurer acted in bad faith by denying coverage and purportedly treating the pandemic as an "act of God"; may argue waiver | Acuity: denial was legally justified (no coverage); waiver cannot create coverage where none exists | Court: Santo’s failed to respond on these claims and cannot show coverage existed; bad faith/waiver claims not sustained (treated as conceded/dismissed). |
Key Cases Cited
- Mastellone v. Lightning Rod Mut. Ins. Co., 175 Ohio App.3d 23 (Ohio Ct. App.) ("physical injury" requires harm that adversely affects structural integrity; intangible/economic harms not "physical")
- Universal Image Prods., Inc. v. Federal Ins. Co., [citation="475 F. App'x 569"] (6th Cir. 2012) ("direct physical loss or damage" requires tangible physical loss; economic/odor harms insufficient)
- Westfield Ins. Co. v. Galatis, 797 N.E.2d 1256 (Ohio 2003) (insurance contracts interpreted by their plain language; courts examine the policy as a whole)
- Sharonville v. American Employers Ins. Co., 846 N.E.2d 833 (Ohio 2006) (insurance policy interpretation is a matter of law; ambiguities construed against insurer)