48 F.4th 645
6th Cir.2022Background:
- Wild Eggs operates breakfast/lunch restaurants in KY, IN, and OH and halted dine-in service after March 2020 COVID-19 "Stay at Home" orders.
- Wild Eggs held a commercial insurance policy from State Auto that included (1) a Restaurant Extension Endorsement covering 30 days of business-income loss for suspensions "due to the order of a civil authority . . . resulting from the actual or alleged exposure of the described premises to a contagious or infectious disease," and (2) a Business Income Coverage provision for loss due to "direct physical loss of or damage to property."
- State Auto denied coverage; Wild Eggs sued for breach of contract in Kentucky federal court. The district court granted defendant’s motion to dismiss; Wild Eggs appealed.
- The Sixth Circuit (applying Kentucky law) reviewed de novo whether Wild Eggs plausibly alleged coverage under (a) the Endorsement (causal chain: exposure → order → suspension) and (b) Business Income Coverage (direct physical loss or damage).
- The panel majority held the Endorsement requires the civil-authority order itself to have arisen from an exposure at the insured premises (a causal chain the statewide preventative orders did not meet) and that the Business Income provision requires tangible physical loss/damage (which Stay at Home orders did not cause).
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of Restaurant Extension Endorsement ("suspension due to order . . . resulting from exposure") | Wild Eggs: "alleged exposure" language permits coverage without proof of a specific on-premises exposure; statewide orders that closed businesses were caused by exposure risk affecting those businesses. | State Auto: "resulting from" creates a required causal chain—order must have arisen from exposure at the described premises; statewide prophylactic orders did not result from exposures at Wild Eggs locations. | Held for State Auto: endorsement unambiguous; orders were preventive statewide measures, not orders that resulted from exposure at Wild Eggs premises, so endorsement does not apply. |
| Business Income Coverage ("direct physical loss of or damage to property") | Wild Eggs: COVID-19 contaminated/inflicted microscopic damage to premises or otherwise caused loss/damage, so coverage applies. | State Auto: "direct physical loss/damage" requires tangible, physical deprivation or harm to property; government shutdowns deprived use but caused no physical damage. | Held for State Auto: under Kentucky precedent "direct physical loss" implies tangible harm; no such physical loss/damage occurred, so no coverage. |
| Policy ambiguity / reasonable-expectations doctrine | Wild Eggs: endorsement is ambiguous; insured reasonably expected coverage for pandemic-related shutdowns; ambiguity must be resolved for insured. | State Auto: language is plain and unambiguous; contra proferentem and reasonable-expectations doctrines inapplicable. | Held for State Auto: court found language unambiguous; reasonable-expectations doctrine does not create coverage where plain terms foreclose it. |
Key Cases Cited
- Estes v. Cincinnati Ins. Co., 23 F.4th 695 (6th Cir. 2022) (under Kentucky law, "direct physical loss" requires tangible deprivation or damage; pandemic orders did not cause such loss)
- Terry Black’s Barbecue, L.L.C. v. State Auto. Mut. Ins. Co., 22 F.4th 450 (5th Cir. 2022) (same policy language; civil-authority orders did not result from on-premises exposure)
- Foreman v. Auto Club Prop.-Cas. Ins. Co., 617 S.W.3d 345 (Ky. 2021) (unambiguous insurance terms are enforced as written)
- Aetna Cas. & Sur. Co. v. Commonwealth, 179 S.W.3d 830 (Ky. 2005) (reasonable-expectations doctrine and contract interpretation principles)
- Ellington v. Ky. Emps.’ Mut. Ins. Co., 459 S.W.3d 876 (Ky. 2015) (reasonable-expectations doctrine resolves ambiguities but does not override unequivocal policy language)
- Bituminous Cas. Corp. v. Kenway Contracting, Inc., 240 S.W.3d 633 (Ky. 2007) (ambiguities in insurance policies construed against drafter)
- Brown Jug, Inc. v. Cincinnati Ins. Co., 27 F.4th 398 (6th Cir. 2022) (standard for reviewing motions to dismiss in insurance COVID-19 coverage suits)