Federal Appeals Court Upholds Dismissal of Manufacturer’s COVID-19 Claims

A Connecticut-based manufacturer has been denied another opportunity to seek $100 million in insurance coverage for business losses it claims it sustained because of the COVID-19 virus.

Amphenol Corp.– a manufacturer of connectors, antennas, sensors, and high-speed specialty cable – appealed from a federal district court judgment issued in April 2023 that dismissed its breach of contract claims against Factory Mutual Insurance Co. for losses related to COVID-19 because it failed to prove the virus caused physical; damage as required to trigger insurance coverage.

Amphenol also challenged the district court’s denial of its motion to file an amended complaint, which the district court concluded would be futile.

The Second Circuit Court of Appeals on July 12 affirmed the dismissals by the lower court, citing several precedents by Connecticut courts including its highest court that have dismissed similar cases seeking insurance coverage over the failure to prove physical damage. The appeals court also agreed that an amended complaint would not change the outcome.

The global manufacturer has claimed that it has suffered more than $100 million in loss or damage to property and in lost business income that would not have occurred but for the pandemic.

In its appeal of the lower court’s summary judgment of its claims against its insurer, Amphenol asserted that coronavirus particles were “adsorbed” or “attached” to the physical components of its properties and that studies suggest that those particles can remain infectious to humans for up to a month.

The federal appeals court noted that the Connecticut Supreme Court in 2023 made clear that the phrase “direct physical loss of property” “clearly and unambiguously” requires “some physical, tangible alteration to or deprivation of the property that renders it physically unusable or inaccessible.” Conn. Dermatology Grp., PC v. Twin City Fire Ins. Co., 346 Conn. 33, 51 (2023).

The Connecticut Supreme Court also concluded that non-persistent contamination from the coronavirus does not fall under the definition of “direct physical loss” of property because, once a contaminated surface is cleaned or simply left alone for a few days, it no longer poses any physical threat to occupants.

Amphenol attempted to distinguish its case by ascribing a month-long shelf life to the coronavirus particles as a contagion based on news studies. However, the state’s high court also made clear that contamination will not be deemed to cause “direct physical loss” to property unless it is “persistent,” distinguishing contamination due to coronavirus from persistent contamination due to noxious substances like “gasoline,” “cat urine,” and “lead dust.”

The federal appeals court said it was unpersuaded that the adsorption of coronavirus particles, which naturally subsides after a month or less, constitutes physical loss or damage as contemplated by the policy and Connecticut law.

The federal appeal court further noted that it has itself twice held that the mere presence of coronavirus does not cause physical damage and an intermediate appellate court in Connecticut has rejected similar claims against Factory Mutual involving nearly identical policy language, citing the state high’s court’s reasoning.

Finally the appeals court rejected Amphenol’s argument that that fact that it engaged in “xtensive remediation efforts” support an inference that it suffered physical loss or damage from the coronavirus particles.

“Connecticut Dermatology makes clear that the adsorption of viral particles, which naturally subside after cleaning or the passage of time, do not constitute physical loss or damage under the policy, the costs of cleaning, whether routine or extraordinary, do not alter that conclusion,” the Second Circuit panel concluded.