2021 Ohio 4268
Ohio Ct. App.2021Background
- Sanzo Enterprises (Play It Again Sports) operated a retail sports store in Westerville and alleged severe business interruption after Ohio COVID-19 emergency orders required nonessential businesses to cease in-person operations.
- Sanzo held an Erie UltraPack commercial property policy (7/31/2019–7/31/2020) that insured against "direct physical ‘loss’ of or damage to" covered property and included income-protection, extra-expense, and civil-authority coverages.
- Sanzo claimed the shutdowns (and related loss of customer access) caused "direct physical loss of or damage to" its property and submitted a claim; Erie denied coverage for lack of physical loss or damage.
- Erie moved for judgment on the pleadings under Civ.R. 12(C); the trial court granted the motion, holding the policy requires tangible/material/structural harm and that the shutdowns were economic loss, not covered physical loss.
- The trial court also denied civil-authority coverage and found Erie’s denial not in bad faith; Sanzo appealed, arguing coverage and bad-faith issues and seeking, alternatively, a stay pending Ohio Supreme Court guidance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether COVID-19 orders / loss of use constitute "direct physical loss of or damage to" triggering income-protection and extra-expense coverage | Sanzo: deprivation of access and loss of normal function is a "physical loss" under the policy (loss distinct from "damage") | Erie: phrase requires tangible, structural or material physical alteration or deprivation of the property itself | Held: No. Court: phrase unambiguously requires immediate, tangible/structural physical loss or damage; loss of use/economic loss is not enough |
| Whether the civil-authority provision is triggered by the shutdown Orders | Sanzo: Orders prohibited access and thus civil-authority coverage applies | Erie: Civil-authority coverage requires physical damage to other property and a close causal nexus; Orders here were preventive to stop virus spread, not response to physical damage | Held: No. Court: Orders were preventive, no alleged physical damage to nearby property, so civil-authority coverage not triggered |
| Whether Erie’s denial of coverage was in bad faith | Sanzo: denial of claim was unjustified and supports a bad-faith claim | Erie: denial was reasonable given legal precedent and the absence of a viable coverage theory | Held: No. Court: Erie had reasonable justification; wrongful denial alone does not establish bad faith |
| Whether Sanzo should be permitted to amend pleadings or obtain discovery to allege virus presence / curbside prohibition | Sanzo: requested leave to amend to add facts (presence of COVID nearby; health-dept order stopping curbside) | Erie: amendments would not cure the absence of a physical-loss allegation; pleadings already fail as a matter of law | Held: Appellate court treated the motion as not properly preserved and, even if considered, held additional facts would not change outcome because the Orders were preventive and no physical damage was alleged |
Key Cases Cited
- Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398 (6th Cir.) (interpreting "direct physical loss of or damage to" to require tangible/structural loss; shut-down orders do not suffice)
- Dakota Girls, LLC v. Philadelphia Indemnity Ins. Co., 17 F.4th 645 (6th Cir.) (reaffirming Santo’s; presence of COVID allegations did not establish physical loss)
- Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th 885 (9th Cir.) ("direct physical loss" requires physical alteration; loss of use insufficient)
- Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 1141 (8th Cir.) (rejecting loss-of-use theory; presence of virus particles does not equal physical damage)
- Mastellone v. Lightning Rod Mut. Ins. Co., 884 N.E.2d 1130 (Ohio Ct. App.) (physical loss excludes mere economic detriment unaccompanied by demonstrable physical alteration)
- Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm, 652 N.E.2d 684 (Ohio) (undefined policy terms given ordinary meaning; contract-interpretation principles)
- Westfield Ins. Co. v. Galatis, 797 N.E.2d 1261 (Ohio) (court must read insurance policy as a whole to ascertain parties’ intent)
- Zoppo v. Homestead Ins. Co., 644 N.E.2d 397 (Ohio) (bad-faith denial requires insurer acted without reasonable justification)