Cincinnati told the appellate court that Senior U.S. District Judge Charles Wolle got it right in late September when he ruled that Des Moines, Iowa-based Oral Surgeons PC did not state viable claims for business income, extra expense or civil authority coverage under its property policy with the insurer.
Judge Wolle found that Oral Surgeons' temporary loss of the ability to fully operate its business due to statewide restrictions on dental practices did not qualify as a covered loss, which is defined in the Cincinnati policy as "accidental physical loss" or "accidental physical damage." Cincinnati argued in its appellate brief that the decision should stand, pointing out that two other Iowa federal judges and more than 70 federal judges in other states have thrown out policyholders' claims for pandemic-related coverage for similar reasons.
"The virus, and the disease it causes, hurts people but does not damage property," Cincinnati's attorneys wrote.
Oral Surgeons' woes began on March 26 when orders from Iowa's governor and dental practice regulator temporarily barred the state's dentists from performing any non-emergency procedures. That prohibition expired on May 8, after which Oral Surgeons was able to resume non-emergency business under enhanced COVID-19 safety standards, according to court documents.
After Cincinnati denied Oral Surgeons' claim for coverage of its pandemic-related losses, the dental practice filed suit in Iowa state court on June 11. The insurer removed the case to federal court shortly thereafter and filed a motion to dismiss in late July.
Cincinnati asserted that Oral Surgeons' claims for business income and extra expense coverage must fail because the dental practice alleged only its bottom line suffered due to temporary loss of the ability to perform non-emergency procedures, not any covered physical loss or damage to the property — which, according to the insurer, must involve a tangible physical change to a structure. Cincinnati further argued that Oral Surgeons did not claim that its office was forced to close due to loss or damage to any nearby property, which is a prerequisite for the policy's separate civil authority coverage.
Judge Wolle sided with Cincinnati on Sept. 29, and Oral Surgeons swiftly appealed.
In an opening brief filed on Nov. 30, Oral Surgeons contended that the district judge erred on multiple fronts. For one, the judge agreed with Cincinnati's position that the policy requires loss or damage to be a "tangible, permanent, physical alteration of property," but that wording is not present in the policy, the dental practice argued.
In addition, Oral Surgeons said its policy with Cincinnati differs from a common policy form found in many other COVID-19 coverage suits because it explicitly defines a loss as either accidental physical loss or damage, rather than leave the term undefined. The dental practice said this fact supports its position that a loss of use of a property can qualify as a covered loss.
"The definition of 'loss' in the policy in question includes two phrases that constituted mutually exclusive possibilities as to how coverage could be triggered under the business income and extra expense portion of the policy – a loss of any sort involving the property or a loss that involves damage to the physical property," Oral Surgeons contended in its brief. "Cincinnati attempts to read into the policy an undefined phrase – 'direct physical loss' – in an attempt to rewrite the insuring agreement of the policy so that it can argue coverage is not triggered in this case."
Oral Surgeons also emphasized that its policy lacks a common policy exclusion for losses stemming from viruses, which has been the death knell for dozens of other COVID-19 coverage claims.
However, in its Friday response brief, Cincinnati said the absence of a virus exclusion in Oral Surgeons' policy is irrelevant because the dental practice cannot meet any of the prerequisites for coverage in the first place. The insurer contended that Oral Surgeons is arguing for a definition of loss that is divorced from the overall context of the policy.
"Coverage based on restrictions on the use of property, without more, reads the word 'physical' out of the phrase, broadening the scope of coverage beyond the ordinary meaning of the language," Cincinnati argued.
Cincinnati said several other parts of the policy would be rendered meaningless if the Eighth Circuit were to adopt Oral Surgeons' argument. For instance, it noted, the policy's business income coverage extends through a "period of restoration" following a suspension of business operations, defined as the time needed to repair, rebuild or replace property that sustains a loss. If the policyholder's temporary loss of use of a property constituted a covered loss, there would be no logical period of restoration, Cincinnati said.
"There is nothing to repair, rebuild or replace," the insurer argued. "Nor can the lifting of the restrictions on Oral Surgeons' practice substitute as an end-point to the period of restoration because there is no sense in which the terms 'repair, rebuild or replace' can be understood to mean the abatement or termination of governmental regulation of the business's operation."
A Cincinnati spokeswoman declined to comment, while counsel for Oral Surgeons did not immediately respond to a request for comment.
Oral Surgeons is represented by Randy J. Wilharber and Tyler S. Smith of Peddicord Wharton LLP.
Cincinnati is represented by Daniel G. Litchfield and Alan I. Becker of Litchfield Cavo LLP and Robert V.P. Waterman Jr. and David C. Waterman of Lane & Waterman LLP.
The case is Oral Surgeons PC v. The Cincinnati Insurance Co., case number 20-3211, in the U.S. Court of Appeals for the Eighth Circuit.
--Editing by Ellen Johnson.
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