Summary
The Seventh Circuit affirmed dismissal of Stant USA Corp.'s claim for coverage under a commercial all-risk insurance policy for pandemic-related business interruption losses. Applying Indiana law, the court held that coverage for physical loss or damage requires a physical alteration of property, and that COVID-19 restrictions and the presence of virus particles did not satisfy that requirement. The court also declined to certify the coverage question to the Indiana Supreme Court.
Topics
Practice areas
Questions Presented
- Whether COVID-19-related loss of use, business closures, or restrictions on operations constituted physical loss or damage under the policy's Contingent Time Element coverage.
- Whether the absence of the word "direct" from the policy's physical-loss-or-damage language expanded coverage beyond the physical-alteration requirement recognized in prior Seventh Circuit cases.
- Whether the Seventh Circuit should certify the coverage question to the Indiana Supreme Court.
Holdings
- Temporary loss of use, business interruption, or restrictions on use caused by the COVID-19 pandemic do not constitute physical loss or damage where the insured does not allege a physical alteration to the property.
- The omission of the word "direct" did not expand coverage because the policy excluded indirect or remote loss or damage and therefore covered only physical loss or damage that was not indirect or remote.
- Certification was unwarranted because the Seventh Circuit had no serious doubt about how the Indiana Supreme Court would resolve the coverage question.
Key quotations
“Therefore, the policy covers only physical loss or damage that is not indirect or remote, which is not materially different in language from the policies we considered that covered only direct physical loss or damage.” (No. 22-1336, p. 6)
“Because we hold that Stant’s claim does not fall within the coverage of the policy for physical property loss or damage, we need not address FM’s alternative arguments that the claim would fall within other exclusions in the policy, including the Loss of Use exclusion and the Contamination exclusion.” (No. 22-1336, p. 8)
Factual background
Stant manufactures products for automobile suppliers and manufacturers. During the COVID-19 pandemic, government orders curtailed the operations of Stant's customers, causing Stant to allege more than $5.3 million in derivative financial losses. Stant sought coverage under an all-risk policy for lost income allegedly resulting from physical loss or damage caused by the virus at its customers' properties.
Procedural history
Stant sued Factory Mutual seeking a declaration that its COVID-19-related losses were covered under the policy's Contingent Time Element coverage. The district court granted Factory Mutual's motion to dismiss. The Seventh Circuit reviewed the dismissal de novo and affirmed.