BI Claim Fails to State a Claim Due to No Physical Loss or Damage

In the first federal appellate court decision on a COVID business interruption claim, the United States Court of Appeals for the Eighth Circuit, applying Iowa law, affirmed the dismissal of the breach of contract and bad faith claim for failure to state a claim.  Oral Surgeons, P.C. (“Oral Surgeons”) stopped performing non-emergency procedures in late March 2020, after the Iowa Governor imposed restrictions on dental practices due to the COVID-19 pandemic.  Oral Surgeons submitted a claim to The Cincinnati Insurance Company under a policy that insured against lost business income sustained due to the suspension of operations “caused by direct ‘loss’ to property.”  The policy defined “loss” as “accidental physical loss or accidental physical damage.”  After dismissal of its claim, Oral Surgeons argued on appeal that the government-imposed restrictions constituted a “direct physical loss to property” because it was unable to fully use its offices.  Citing Iowa case law and its own precedent, the Eighth Circuit held that “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.”  Because Oral Surgeons did not allege any physical alteration of property, the district court properly granted the motion to dismiss for failure to state a claim.  Oral Surgeons, P.C. v. Cincinnati Ins. Co., No. 20-3211 (8^th Cir. July 2, 2021).