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Volume XII, Number 183

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Fourth Circuit Upholds Dismissal of Insurance Claim for Pandemic Related Business Losses

In a published decision filed March 7, 2022, the U.S. Court of Appeals for the Fourth Circuit in Uncork and Create LLC v. The Cincinnati Insurance Company, affirmed the U.S. District Court for the Southern District of West Virginia’s judgment dismissing the case, holding that unambiguous terms of an insurance policy did not permit businesses to recover for loss of income resulting from the COVID-19 pandemic.

In March 2020, Uncork and Create LLC (Uncork) operated two business locations in West Virginia.  However, due to the emergence of COVID-19, the Governor declared a state of emergency and issued an executive order requiring non-essential businesses in West Virginia to temporarily cease operations.  In compliance, Uncork closed its two locations and suffered a substantial loss of business income.  One location reopened, but the other remained permanently closed.  Uncork filed a claim with its insurer under its commercial property insurance policy for its lost business income, but the claim was denied because there was no evidence of “direct physical loss or damage” to Uncork’s property, as required by the policy.  Uncork filed a class action with similarly situated businesses, arguing that the loss of use and access to its business satisfied the policy language.  The District Court granted the insurer’s motion to dismiss, holding that neither the closure nor COVID-19 caused “physical loss or physical damage” under the terms of the policy.  Uncork appealed.

On appeal, the Fourth Circuit affirmed the District Court, concluding that the policy terms are unambiguous and supported by West Virginia law.  When considering the plain meaning of “physical loss” or “physical damage” as used in the policy, the terms relate to natural or material things in the state of being destroyed or placed beyond recovery (destruction, ruin).  Therefore, the need to repair, rebuild, or replace the property is a pre-condition for coverage of lost business income and other expenses.  Any other meaning that does not require material alteration to the property would render the terms and pre-conditions meaningless.  Further, the Court recognized that the West Virginia case of Murray v. State Farm Fire & Casualty Company required coverage for physical loss when there was a present or imminent threat of material damage, which was not present at Uncork’s locations.  Uncork’s “lost” access to its property was limited to the number of individuals working in the space and depended on whether members of the public were invited into the space.  Importantly, the property did not suffer material harm or destruction because no repairs or replacements were needed in order to use the property as intended.  Because of this, Uncork’s closure, due to circumstances surrounding COVID-19, was not covered under its policy, and the Court affirmed the District Court’s dismissal of its claim for coverage.

© Steptoe & Johnson PLLC. All Rights Reserved.National Law Review, Volume XII, Number 74
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About this Author

Laurie Barbe, insurance claims lawyer, Steptoe Johnson, Morgantown law firm
Member

Laurie Barbe represents insurance companies in response to first and third party insurance claims and defends individuals and businesses in claims involving personal injury, wrongful death, products liability and property damage. She has also been involved in appellate proceedings before the Supreme Court of Appeals of West Virginia and the United States Court of Appeals for the Fourth Circuit.

Key Experience

Provided assistance to insurance companies writing new business in West Virginia to assure their policies are in compliance with applicable laws and regulations

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304-598-8113
Garrett M. Spiker Associate Steptoe & Johnson PLLC
Associate

Garrett Spiker brings courtroom experience to the table after serving as a judicial clerk for U.S. Magistrate Judge Robert W. Trumble in the Northern District of West Virginia. His work familiarized him with the inner workings of civil litigation and with the lifecycle of litigation. Within his practice, Garrett works with publicly traded and privately-owned energy companies on a variety of civil litigation matters. Additionally, Garrett works with corporate and municipal clients to help them resolve disputes, often before they hit the courtroom. Garrett appreciates the...

304-933-8149
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