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Fourth Circuit Court Upholds Decision on COVID-19 Loss Coverage

Posted on March 09, 2022

In the ninth COVID-19 business interruption claim to go before a federal appeals court, the Fourth Circuit continued the unanimous streak of finding in favor of the insurer in a ruling delivered on March 7.

Uncork and Create, a wine and fine arts venue in West Virginia, became the first business to bring a pandemic-related closure suit against its insurer to the Fourth Circuit court. The company argued their policy entitles them to coverage for the loss of business suffered during state-mandated closures during the pandemic lock-down.

The three-judge panel of the Fourth Circuit found in favor on the insurer, Cincinnati Insurance Co., in its decision. As in earlier rulings by other appeals courts, the court maintained the loss of business due to the insured’s loss of access to the property did not trigger coverage.

Uncork and Create claimed coverage under Cincinnati’s “Business Income and Extra Expense” provision, covering “direct loss” of property caused by “accidental physical loss or accidental physical damage.” The policy also states it will pay for income losses during a necessary “period of restoration.”

In this case, Uncork and Create contended the loss of income from a forced closure is a “direct physical loss,” as the business owner was deprived of access to their property—i.e., lost access to their property because of the pandemic-related closures.

However, the three-judge panel of the Fourth Circuit court denied Uncork and Create’s claim based on previous West Virginia rulings setting the parameters for interpreting the language of insurance policies. In their ruling, the panel looked to precedents establishing that in instances of undefined terms, the language of the policy should be considered according to “its plain meaning as written.”

In applying this precedent, the judges stated the loss of use argued by the insured does not qualify as direct physical loss. Rather, the loss must be actual physical damage or loss to the property or surrounding area, which then precludes the ability to operate the business. As there was no physical damage plausibly alleged by the insured, Cincinnati Insurance is not required to provide coverage for any loss.

The Fourth Circuit’s ruling in favor of the insurer marks the ninth federal appeals panel asked to rule on whether insurance policies regarding loss of business during COVID-19-related business closures should provide coverage. Thus far, all federal appeals courts have decided in favor of the insurer for reasons similar to the Fourth Circuit’s ruling. As pandemic-initiated closures do not show a clear instance of physical property loss or damage, the insurance coverage does not trigger, and businesses do not receive recompense from their insurers for the loss.

The case is Uncork and Create LLC v. The Cincinnati Insurance Co., case number 21-1311, in the US Court of Appeals for the Fourth Circuit.

The opinion can be found here.