No “Direct Physical Loss or Damage” Where Property Merely Needs To Be Cleaned

UPDATE: With implications for COVID-19 loss of rent and business interruption claims, the Eleventh Circuit has held that an item or structure that merely needs to be cleaned has not suffered a loss that is both “direct” and “physical.” Since the emergence of the COVID-19 pandemic in 2020, many businesses and property owners throughout the United States have claimed that their property insurance policies should respond to related financial losses. Policyholder attorneys argue, among other things, that an insurance policy’s coverage for “direct physical loss or damage” is triggered when the virus is present in or on the insured property.

But an August 18, 2020 decision by the Eleventh Circuit Court of Appeals concluded that under Florida law, an item or structure that merely needs to be cleaned has not suffered a “loss” which is both “direct” and “physical.” The case is Mama Jo’s Inc., d.b.a. Berries v. Sparta Ins. Co., No. 18-12887, 2020 U.S. App. LEXIS 26103 (11th Cir. Aug. 18, 2020). The policyholder, an open-air restaurant, claimed physical loss or damage when dust from a nearby construction site infiltrated the restaurant and had to be cleaned; the policyholder also claimed lost business income under its business interruption coverage. The policyholder claimed that there was “physical loss or damage” because the structure had to be cleaned to remove the dust; however, there was no evidence that any items had to be replaced. A trial court granted summary judgment for the insurer, concluding that a “direct physical loss” requires a showing that the property was rendered uninhabitable or unusable, and a “direct physical loss” does not occur where an item or structure merely has to be cleaned.

The Eleventh Circuit upheld summary judgment for the insurer, explaining that the policyholder did not establish that it suffered direct physical loss or damage to property because an item or structure that merely needs to be cleaned has not suffered a “loss” which is both “direct” and “physical” under Florida precedent requiring that the loss amount to an actual, tangible change in the property. The Eleventh Circuit further concluded that summary judgment was properly entered for the insurer on the policyholder’s business interruption claim because the policyholder only showed that the structure had to be cleaned because of the dust, which did not amount to a “direct physical loss,” so business interruption coverage was not triggered.

Under Florida law, absent evidence of something more than the need to clean, a claim brought pursuant to a property policy may not be covered.