Insurer Wins First Appellate Decision Addressing COVID-19 Business Interruption Coverage

July 13, 2021 / CM Reports / News

By Melinda S. Kollross

In the first appellate decision nationwide addressing business interruption coverage for COVID-19 pandemic related losses, the Eighth Circuit ruled for the insurer, holding that Cincinnati Insurance Company does not have to pay an Iowa dental clinic for losses due to government-imposed COVID-19 restrictions.  Oral Surgeons PC v. The Cincinnati Insurance Co., No. 20-3211 (8th Cir. July 2, 2021). 


Oral Surgeons provides oral and maxillofacial surgery services at its four offices in the Des Moines, Iowa, area. It stopped performing non-emergency procedures in late March 2020, after the governor of Iowa declared a state of emergency and imposed restrictions on dental practices because of the COVID-19 pandemic. Oral Surgeons resumed procedures in May 2020 as the restrictions were lifted, adhering to guidance from the Iowa Dental Board.

Oral Surgeons submitted a claim to Cincinnati for losses it suffered as a result of the suspension of non-emergency procedures. The policy insured against lost business income and certain extra expense sustained due to the suspension of operations “caused by direct ‘loss’ to property.” The policy defines “loss” as “accidental physical loss or accidental physical damage.” Cincinnati responded that the policy did not afford coverage because there was no direct physical loss or physical damage to Oral Surgeons’ property.  This lawsuit followed. The district court granted Cincinnati’s motion to dismiss, concluding that Oral Surgeons was not entitled to declaratory judgment and that it had failed to state claims for breach of contract and bad faith.  Oral Surgeons appealed.


Reviewing de novo and applying Iowa law in this diversity action, the Eighth Circuit unanimously affirmed.  The Eighth Circuit rejected Oral Surgeons’ contention that the policy’s disjunctive definition of “loss” as “physical loss” or “physical damage” creates an ambiguity that must be construed against Cincinnati. To give the terms separate meanings, Oral Surgeons suggested  defining physical loss to include “lost operations or inability to use the business” and defining physical damage as a physical alteration to property.  Amicus Restaurant Law Center contended that “physical loss” occurs whenever the insured is physically deprived of the insured property.

As the Eighth Circuit explained:

The policy here clearly requires direct “physical loss” or “physical damage” to trigger business interruption and extra expense coverage. Accordingly, there must be some physicality to the loss or damage of property—e.g., a physical alteration, physical contamination, or physical destruction.


The policy cannot reasonably be interpreted to cover mere loss of use when the insured’s property has suffered no physical loss or damage.

The Eighth Circuit further noted that the unambiguous requirement that the loss or damage be physical in nature accords with the policy’s coverage of lost business income during the “period of restoration.”  The Court cited its precedent interpreting “direct physical loss” under Minnesota law as instructive.  Prior precedent rejected the argument that loss of use or function necessarily constitutes “direct physical loss or damage” as such an interpretation would allow coverage whenever property cannot be used for its intended purpose.

Learning Points: We expect Oral Surgeons to be widely cited in subsequent COVID-19 BI claim cases addressing the physical loss or damage requirement for business interruption coverage to exist.  Because a virus exclusion was not at issue, the Eighth Circuit’s ruling shows that the insured must first establish a covered cause of loss—which must be physical—prior to the analysis of any exclusionary language.  However, we also note that the Oral Surgeons complaint did not allege the presence of COVID-19 virus on the property, and thus policyholders will attempt to distinguish it in subsequent cases alleging that the presence of virus on premises  constitutes physical loss or damage to covered property.

  • Chicago

    Illinois 60603

    10 South LaSalle Street

    Chicago, Illinois 60603

    T: 312.855.1010 TF: 800.826.3505 F: 312.606.7777 Office Managing Partner: Dennis D. Fitzpatrick

  • New York

    New York 10005

    28 Liberty Street 39th Floor

    New York, New York 10005

    T: 212.805.3900 TF: 800.826.3505 F: 212.805.3939 Office Managing Partner: Carl M. Perri

  • Mission Viejo

    California 92691

    27285 Las Ramblas

    Suite 200

    Mission Viejo, California 92691

    T: 949.260.3100 TF: 800.826.3505 F: 949.260.3190 Office Managing Partner: Ian R. Feldman

  • Florham Park

    New Jersey 07932

    100 Campus Drive

    Florham Park, New Jersey 07932

    T: 973.410.4130 TF: 800.826.3505 F: 973.410.4169 Office Managing Partner: Carl M. Perri

  • Michigan City

    Indiana 46360

    200 Commerce Square

    Michigan City, Indiana 46360

    T: 219.262.6106 TF: 800.826.3505 F: 312.606.7777 Office Managing Partners: Paige M. Neel, Kimbley A. Kearney

  • Appleton

    Wisconsin 54914

    4650 W. Spencer Street

    Appleton, Wisconsin 54914

    T: 920.560.4658 TF: 800.826.3505 F: 920.968.4650 Office Managing Partner:

  • Stamford

    Connecticut 06902

    68 Southfield Avenue

    2 Stamford Landing Suite 100

    Stamford, Connecticut 06902

    T: 203.921.0303 TF: 800.826.3505 F: 212.805.3939 Office Managing Partner: Matthew J. Van Dusen

  • Tampa

    Florida 33609

    4830 West Kennedy Boulevard, One Urban Center

    Suite 600

    Tampa, Florida 33609

    T: 813.509.2578 TF: 800.826.3505 F: 312.606.7777 Office Managing Partner: Dennis D. Fitzpatrick

  • San Francisco

    California 94111

    100 Pine Street

    Suite 1250

    San Francisco, California 94111

    T: 415.287.2744 TF: 800.826.3505 F: 949.260.3190 Office Managing Partner: Ian R. Feldman

  • Houston

    Texas 77019

    2929 Allen Parkway

    American General Center, Suite 200

    Houston, Texas 77019

    T: 346.229.4612 TF: 800.826.3505 F: 312.606.7777 Office Managing Partner: Ramy P. Elmasri

  • Dallas

    Texas 75201

    325 N. Saint Paul Street

    Suite 3100

    Dallas, Texas 75201

    T: 469.942.8635 TF: 800.826.3505 F: 312.606.7777 Office Managing Partner: Ramy P. Elmasri

  • Boca Raton

    Florida 33434

    7777 Glades Road

    Suite 405

    Boca Raton, Florida 33434

    T: 561.765.5305 TF: 800.826.3505 F: 312.606.7777 Office Managing Partner: Dennis D. Fitzpatrick