27 F.4th 926
4th Cir.2022Background
- Uncork and Create LLC operated two art-studio businesses in West Virginia and closed them in March 2020 after the Governor’s Covid-19 state-of-emergency and non-essential business closure order; one studio later reopened, the other closed permanently.
- Uncork sought business-income and extra-expense coverage under a Cincinnati Insurance commercial property policy that insures against “direct ‘loss’” from a “Covered Cause of Loss,” defined as “direct, accidental physical loss or accidental physical damage.”
- The policy’s business-income coverage requires that the suspension of operations be caused by direct loss to property and ties the “period of restoration” to repairing, rebuilding, replacing, or relocating the covered premises.
- Cincinnati denied the claim, stating there was no direct physical loss or damage to the insured property; Uncork sued for declaratory relief and breach of contract; the district court dismissed under Rule 12(b)(6).
- On appeal the Fourth Circuit applied West Virginia law, reviewing the dismissal de novo, and focused on whether “physical loss” or “physical damage” unambiguously requires material physical alteration or destruction of the premises.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the closure order or COVID-19 presence qualifies as a “direct accidental physical loss or accidental physical damage.” | Loss of use, access, or functionality of premises qualifies as physical loss/damage even without structural alteration (relying on Murray). | “Physical loss/damage” requires material destruction or material harm that physically alters property; economic or access restrictions are insufficient. | The court held the terms unambiguously require material destruction or harm; the closure order and pandemic did not cause such physical alteration, so no coverage. |
| Whether Murray v. State Farm renders “physical loss” ambiguous or broader than structural damage. | Murray shows physical loss can exist absent structural damage, so the policy term is ambiguous. | Murray involved present/imminent material physical harm making property unusable; it does not broaden the term to cover mere deprivation of use. | Murray does not create ambiguity; it requires existing or imminent material damage—so it does not support Uncork’s broader reading. |
| Whether the policy’s “period of restoration” and repair/replace language permit a deprivation-only reading of “physical loss.” | “Loss” can mean deprivation of use or access, so restoration language should not limit coverage to physical repairs. | The restoration language (repair/rebuild/replace/relocate) is a precondition showing coverage requires material physical alteration. | The court agreed with Cincinnati: restoration language confirms a material alteration/replacement requirement, rejecting the deprivation-only reading. |
| Whether the question should be certified to the West Virginia Supreme Court as ambiguous. | Plaintiff asked for certification or amendment, claiming unsettled state law. | Defendant maintained the policy language is unambiguous under West Virginia law. | The court denied certification and amendment, concluding the terms unambiguous under West Virginia law and affirming dismissal. |
Key Cases Cited
- Murray v. State Farm Fire & Casualty Co., 509 S.E.2d 1 (W. Va. 1998) (held physical loss may exist without structural damage where imminent material harm renders property unusable)
- Payne v. Weston, 466 S.E.2d 161 (W. Va. 1995) (insurance-policy interpretation: determine parties’ intent from policy language; give plain meaning when unambiguous)
- Glen Falls Ins. Co. v. Smith, 617 S.E.2d 760 (W. Va. 2005) (ambiguity requires reasonable susceptibility to two meanings; interpret policy as a reasonable insured would)
- Boggs v. Camden-Clark Mem'l Hosp. Corp., 693 S.E.2d 53 (W. Va. 2010) (ambiguous policy language construed against insurer)
- Schilling v. Schmidt Baking Co., 876 F.3d 596 (4th Cir. 2017) (standard of review for Rule 12(b)(6) dismissal; accept well-pleaded allegations)
- Chafin v. Farmers & Mechanics Mut. Ins. Co. of W. Va., 751 S.E.2d 765 (W. Va. 2013) (discusses when out-of-jurisdiction interpretations may inform ambiguity analysis)