The Eleventh Circuit hands A COVID-19 coverage win to the insurer

Courts universally favor insureds in coverage disputes with insurance companies. After all, insurance companies are big, they hire lawyers and they write the policies that control coverage. Recognizing the advantages of power, courts throughout the United States place a heavy thumb on the scale in favor of the insureds. If there is even a “plausible” argument that policy language can be read two ways, the insured wins. 

Yet the courts also recognize that where the language of a policy is “unambiguous,” they apply the law no matter the outcome – even during a global pandemic. And, that is exactly what is happening in the COVID-19 coverage suits that have hit American courts almost as hard as the pandemic itself. 

The latest example is Gilreath Family & Cosmetic Dentistry, Inc. v. Cincinnati Insurance Company, ___ Fed. Appx. ___, 2021 WL 3870697 (11^th Cir. Aug. 31, 2021). In just the second decision issued by a federal appeals court in a COVID-19 coverage case, the Eleventh Circuit made short work of the insured’s coverage arguments.¹

Gilreath Family & Cosmetic Dentistry is a dental practice located in Marietta, Georgia.  Following the shelter-in-place order issued by their governor, Gilreath suspended all but its essential services and lost a “substantial portion of its usual income” as a result. 

Gilreath filed a class action lawsuit against its insurance carrier, arguing that it was entitled to business interruption coverage under the “business income,” “extra expense” and “civil authority” provisions of its general commercial liability policy. The district court dismissed its complaint and Gilreath appealed.    

Affirming the district court, the Eleventh Circuit noted that coverage under each of these sections is not unlimited; it requires a showing of “accidental physical loss or accidental physical damage” in order to recover. Citing to Georgia state law, the court noted that “accidental physical loss” is interpreted to mean that there must be “an actual change in the insured property” that either makes the property “unsatisfactory for future use” or requires “that repairs be made.” 

The court observed that despite the pandemic, “Gilreath still used the property to perform emergency procedures,” and failed to cite “any damage or change in the property...that required its repair or precluded its future use for dental procedures.” Gilreath’s argument that its confined space was conducive to the “lingering” of viral particles did not sway the court, either. “Even so, we do not see how the presence of those particles would cause physical damage or loss to the property.”

The court’s rejection of the confined space argument is significant. In the emerging COVID-19 coverage lawsuits, plaintiffs are attempting to leverage the most recent “science” on the subject, arguing that viral material alters the molecular structure of surfaces; that “logarithmic” analysis “proves” that an increased rate of infection places the viral load within an insured premises; and that insured premises are rendered “uninhabitable” by the virus – even as they are open for business today despite the surge caused by the Delta variant.

Even more important, the Eleventh Circuit reaffirmed that physicality remains the key to triggering business income coverage. To date, the courts remain committed to the idea that insurers do not cover economic loss unless it was caused by physical loss or damage. A governmental order that requires suspension of operations does not work “an actual change in insured property.” Nor is an “algorithm” a substitute for “physical damage.” As the Eleventh Circuit noted, if the language of an insurance policy is unambiguous, “the policy applies ‘as written, regardless of whether doing so benefits the carrier or the insured.’” When it comes to business interruption coverage in COVID-19 cases, “physical” still means physical.

Here is the take-away. Insurers have prevailed in the overwhelming majority of federal trial court decisions to date, principally on the basis of long-established state law requiring physical damage to a structure as a predicate to business’s interruption coverage. Now, insurers are 2-0 in the federal courts of appeals. Time will tell if the cases continue to break in favor of the insurers. Notably, it remains to be seen whether state supreme courts will read their own law in the same way as the federal courts that are currently applying it.