36 F.4th 23
1st Cir.2022Background
- SAS International owned and leased commercial property in Fall River, MA, insured by General Star under a policy effective Sept. 16, 2019–Sept. 16, 2020.
- Policy provided Building & Personal Property, Business Income (and Extra Expense), and Civil Authority coverage triggered by "direct physical loss of or damage to" covered property.
- SAS submitted pandemic-related claims alleging SARS‑CoV‑2 lingered in aerosols and on surfaces (up to 28 days) and that business was suspended; General Star denied coverage.
- District Court dismissed SAS's complaint under Rule 12(b)(6), finding no plausible allegation of "direct physical loss or damage" because the virus’s presence is transient or removable by cleaning.
- First Circuit affirmed, applying the Massachusetts Supreme Judicial Court’s decision in Verveine, which requires a distinct, demonstrable physical alteration (saturation/ingress/persistent contamination requiring remediation) to show "direct physical loss."
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Business Income coverage is triggered by COVID‑19 contamination | Virus presence on surfaces and in air caused "direct physical loss of or damage to" property (business suspension caused by contamination) | Policy requires a distinct, demonstrable physical alteration; virus presence is evanescent or removable by simple cleaning and thus not covered | No — allegations do not plausibly show the requisite "direct physical loss or damage" under Massachusetts law (Verveine) |
| Whether Civil Authority coverage provides independent relief | Civil orders and restricted access due to the pandemic should trigger Civil Authority coverage | Civil Authority coverage is predicated on a Covered Cause of Loss (direct physical loss/damage); absent that, Civil Authority coverage fails | No — Civil Authority coverage cannot be invoked independently of a covered direct physical loss |
Key Cases Cited
- Verveine Corp. v. Strathmore Ins. Co., 184 N.E.3d 1266 (Mass. 2022) (SJC holding that "direct physical loss or damage" requires a distinct, demonstrable physical alteration or persistent contamination requiring remediation)
- SAS Int'l, Ltd. v. Gen. Star Indem. Co., 520 F. Supp. 3d 140 (D. Mass. 2021) (district court dismissal holding virus was not a "direct physical loss")
- Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 20 F.4th 327 (7th Cir. 2021) (discussing that loss/damage requires repair/remediation or relocation)
- Murray v. State Farm Fire & Cas. Co., 509 S.E.2d 1 (W. Va. 1998) (property rendered unusable/uninhabitable by physical peril can constitute direct physical loss)
- W. Fire Ins. Co. v. First Presbyterian Church, 437 P.2d 52 (Colo. 1968) (illustrative of persistent contamination/odor requiring remediation)
- Farmers Ins. Co. of Or. v. Trutanich, 858 P.2d 1332 (Or. Ct. App. 1993) (persistent pollution/contamination cases contrasted with evanescent contaminants)