Insurer prevails in first federal appellate decision addressing business interruption coverage due to COVID-19


By: William H. Buechner, Jr.

The Eighth Circuit recently issued the first federal appellate decision regarding a claim asserting business interruption coverage because of COVID-19.    In Oral Surgeons, P.C. v. The Cincinnati Ins. Co., 2021 U.S. App. LEXIS 19775 (8th Cir. July 2, 2021), the insured offered oral and maxillofacial surgery at four offices in the Des Moines, Iowa area.  In late March 2020, the governor of Iowa declared a state of emergency and imposed restrictions on dental practices because of the COVID-19 pandemic.  As a result, the insured stopped performing non-emergency surgeries until May 2020, when the restrictions were lifted.    

The insured submitted a claim to the insurer (Cincinnati) for lost business income on the ground that its lost income was caused by direct “accidental physical loss or accidental physical damage” to property.   The insurer denied coverage on the ground that there was no direct physical loss or physical damage to the insured’s property.   The insured filed suit, and the district court granted the insurer’s motion to dismiss.    

On appeal, the Eighth Circuit, applying Iowa and Minnesota law, held that there must be physical alteration, physical contamination or physical destruction to trigger business interruption coverage under the policy.   The Eighth Circuit also held that the mere loss of use of the property is insufficient to trigger coverage when the insured’s property has suffered no physical loss or damage.   The panel emphasized that the insured did not allege any physical alteration of its property.  In reaching this conclusion, the panel cited numerous Iowa district court and state court decisions likewise holding that the COVID-19 pandemic and the government-imposed restrictions that followed do not constitute directly physical loss under business interruption policies.   

Attorneys for policyholders contend that Oral Surgeons is narrow and did not consider arguments asserted by policyholders in other cases that the virus was physically present on the premises or that the air surrounding the premises was physically altered by the presence of the virus.   Regardless, Oral Surgeons is just the first skirmish in the ongoing battle between policyholders and insurers that is now reaching the federal appellate courts.  As reported in Law360, data from the University of Pennsylvania’s COVID Coverage Litigation Tracker indicates that there are a total of 166 appeals pending in the 11 federal appellate courts concerning business interruption coverage claims arising out of the COVID-19 pandemic.    

FMG will continue to monitor decisions from the federal and state appellate courts addressing business interruption coverage claims arising out of the COVID-19 pandemic.   

For more information, please contact William H. Buechner, Jr. at