38 F.4th 4
8th Cir.2022Background:
- Torgerson Properties, Inc. (TPI) owns and operates hotels, restaurants, and conference centers and held an all-risk property policy from Continental Casualty Co. covering Business Interruption and Civil Authority/Ingress-Egress losses.
- Beginning March 2020, state and local COVID-19 shutdown orders curtailed TPI’s operations; TPI submitted a claim for lost business income and said one employee and one visitor had tested positive.
- Continental denied the claim; TPI sued for breach of contract and attached the ``we believe'' contamination statements as an exhibit to its complaint.
- The district court dismissed for failure to state a claim; TPI appealed. The parties agree Minnesota law governs; review is de novo.
- The court applied precedent requiring a ‘‘physicality’’ showing for “direct physical loss of or damage to property” and emphasized that blanket government restrictions are not, by themselves, a direct physical loss.
- The court held TPI failed to plead the required causal link: any alleged contamination affected at most 2 of 40 locations, TPI did not allege it curtailed operations because of discovered contamination (rather than government orders), and the shutdown orders — not contamination — caused the business interruption; dismissal was affirmed.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the policy’s “direct physical loss of or damage to property” language is satisfied by alleged presence of SARS-CoV-2 on premises | TPI: virus was actually present at some locations, so contamination is a physical loss triggering coverage | Continental: coverage requires tangible physical loss; government orders alone do not qualify | Court: contamination can be a physical loss, but TPI’s allegations (belief of two positive tests) were insufficient to show the contamination caused the loss claimed |
| Whether civil authority/ingress-egress coverage applies when government orders issued for public health reasons | TPI: orders (issued because of contagion) are a direct result of physical loss so coverage applies | Continental: orders that apply broadly are not a direct result of physical loss to the insured’s property | Court: orders are not a direct physical loss; TPI didn’t show orders were issued as a direct result of loss at TPI locations |
| Causation: must business interruption be caused by on-premises contamination rather than by government orders? | TPI: the presence of the virus on premises contributed to or caused the interruptions | Continental: the loss was caused by shutdown orders applicable to all businesses, not by on-site contamination | Court: the shutdown orders caused the interruption; TPI failed to allege it curtailed business due to on-site contamination, so causation lacking |
| Scope: can contamination at some locations support claims for all locations? | TPI: contamination allegations support claim for lost income across its operations | Continental: contamination (if any) was limited and does not support losses at all sites | Court: alleged contamination affected at most 2 of 40 locations and cannot justify lost income across all locations |
Key Cases Cited
- Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 1141 (8th Cir. 2021) (requires some physicality for “direct physical loss or damage” and treats blanket restrictions as not physical loss)
- Monday Restaurants, Inc. v. Intrepid Ins. Co., 32 F.4th 656 (8th Cir. 2022) (applies the physicality requirement to COVID-related business interruption claims)
- Source Food Tech., Inc. v. U.S. Fid. & Guar. Co., 465 F.3d 834 (8th Cir. 2006) (governmental bans applied to all products were not direct physical loss)
- Northstar Indus., Inc. v. Merrill Lynch & Co., 576 F.3d 827 (8th Cir. 2009) (standards for de novo review of motions to dismiss)