6th Circuit Issues Third Opinion Rejecting COVID-19 Business-Interruption Claim

The 6th Circuit Court of Appeals on Friday affirmed the dismissal of another lawsuit seeking coverage for COVID-19 business-interruption losses, this one filed jointly by 16 private pre-schools in Ohio.

It was the third ruling by the 6th Circuit in the past two months that found government shut-down orders did not cause a direct physical damage or loss, and the eighth decision on that point by federal appellate courts. Federal judges have overwhelmingly ruled against similar claims, as well as state court judges to a lesser extent.

Attorneys for the preschools conceded that they could not prevail on three of their four arguments for coverage after the 6th Circuit ruled against similar points in the two previous cases. But they hoped a provision in the insurance policies issued by a unit of the Tokio Marine Group that provided coverage for “communicable diseases and waterborne pathogens” would prompt a different result.

The 6th Circuit’s opinion notes that the plaintiffs did not allege that any of their customers had actually contracted COVID-19. The court said the policy unambiguously stated that coverage under the communicable disease provision was triggered only if a shutdown order stems from an actual illness.

“A contract’s failure to define every term does not make it ‘ambiguous,'” the opinion says. “Nor is a term ambiguous just because there are ‘multiple readings.'”

The 16 preschools, which do business as The Goddard School, filed suit after Philadelphia Indemnity Insurance Co. denied their claims for income lost because of state orders that forced them to close down on March 25, 2020. They argued coverage was owed under the building-and-personal-property, business income, civil authority and communicable disease provisions of the policies.

U.S. District Court Judge Sarah Daggett Morrison in Columbus granted summary judgment in favor of the insurer. “Without a material change in the property’s condition, there could not have been ‘damage,'” the opinion says, summarizing Morrison’s ruling. “Without dispossession or the property’s destruction, there could not have been ‘loss.'”

The preschools appealed. The plaintiffs’ attorneys acknowledged that the 6th Circuit’s ruling on Sept. 22 that affirmed the dismissal of a lawsuit filed by Santo’s Italian Cafe made it impossible to prevail on three of the policy provisions, but they held out for the communicable disease provision in the policy.

While they did not say in the pleadings that anyone at the contracted COVID-19, they alleged that people who had been on the properties had exhibited symptoms of the disease. The attorneys interpreted the wording of the policy to require coverage for income lost because of a shutdown order issued for any communicable disease, not necessarily a disease that had been detected on its property.

The appellate panel didn’t read the policy the same way. Even though the Ohio Supreme Court has not ruled on the issue, the 6th Circuit said it can predict how the state’s high court will interpret Ohio law.

“Like the Santo’s court, we appreciate the ‘singular challenges’ that COVID-19 has caused for businesses like Dakota Girls,” the opinion concludes. “But those challenges do not give us license to rewrite the plain terms of an insurance policy to confer upon the appellants a form of coverage for which they never contracted.”

Photo of a teacher working with pre-school students courtesy of Goddard Schools.