Since the COVID-19 pandemic, businesses affected by state-mandated closures have been filing business interruption claims to seek compensation for their lost income, profits, and expenses. However, in a recent case, Ferrer & Poirot, GP, et al v. Cincinnati Insurance Company, the Fifth Circuit Court of Appeals has denied business interruption claims specifically caused by COVID-19 closures.
Ferrer & Poirot, GP, et al v. Cincinnati Insurance Company – Background
The Fifth Circuit, in Ferrer & Poirot, GP, et al v. Cincinnati Insurance Company, a law firm with offices in Dallas, Texas and Atlanta, Georgia, sued to recover lost income and expenses attendant to the COVID-19 pandemic. In the early stages of the COVID-19 pandemic, when stay-at-home mandates were in full force and effect, the Plaintiff law firm purchased equipment and supplies to prevent the spread of the virus and to facilitate remote work. Plaintiff filed a claim with Defendant to recover the costs of the equipment and supplies and to recover lost income. The Plaintiff’s insurance policy issued by Defendant provided property damage, business income, extra expense, and civil authority coverage.
Defendant denied Plaintiff’s claim, and Plaintiff sued alleging breach of contract. Plaintiff further alleged that the physical presence of the COVID-19 virus caused its loss and met the policy’s conditions. Defendant filed a Rule 12(b)(6) Motion to Dismiss for Failure to State a Claim. The district court granted the motion, and Plaintiff appealed.
The Fifth Circuit Ruling
The Fifth Circuit affirmed the dismissal. In interpreting the Plaintiff’s policy with the Defendant, the Fifth Circuit held that the Defendant was only obligated to pay for lost business income and expenses where there civil authority prohibited access to Plaintiff’s premises in response to “dangerous physical conditions.” In interpreting other parts of Plaintiff’s policy, the covered loss was limited to physical loss or physical damage to Plaintiff’s premises, which did not occur. Thus, there was no cause of action, and the dismissal was affirmed.
The Upshot for COVID-19 business interruption claims
This is a continuing trend throughout the courts of appeals, as similar decisions have been reached by all federal courts of appeals. Most recently the First Circuit issued three decisions all affirming the dismissal of suits filed for denial of business interruption claims, noting that surface-level contamination that can be removed by cleaning does not constitute physical damage under the plaintiff’s policy.
This trend may now be completely written in stone: the United States Supreme Court just denied certiorari to a Tenth Circuit Court of Appeals case filed by Goodwill Industries, where the Tenth Circuit held that there was no direct physical loss or damage to Goodwill’s property and further held that a covered loss under that Plaintiff’s policy required a “tangible dispossession of property.” With all federal courts of appeals denying this type of claim, and with the Supreme Court denying cert. to hear this type of claim, COVID-19 business interruption claims have little hope of gaining traction in the future.