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Goodwill Industries of Central Oklahoma, Inc. v. Philadelphia Indemnity Insurance Co.

No. 21-6045.  W.D.Okla. Judge Matheson. Commercial Lines Insurance Policy—Loss of Business Income Due to COVID-19—Scope of Policy Coverage—Virus Exclusion.

December 21, 2021

Plaintiff is a nonprofit organization that operates retail stores and donation centers. It closed its retail stores to the public to comply with state and local orders regarding the COVID-19 pandemic. Plaintiff had an insurance policy (policy) with defendant that provided coverage for loss of business income and contained a virus or bacteria exclusion. After suffering losses due to the shutdown, plaintiff sued defendant in state court, seeking a declaration that the policy covered its losses. Defendant removed the case to federal court and moved to dismiss. The district court granted the motion. Plaintiff moved to alter or amend the judgment under Fed. R. Civ. P. 59(e), and the district court denied the motion.

Plaintiff argued on appeal that the policy’s business income coverage applied and that it suffered a direct physical loss of property when it suspended operations in compliance with the shutdown orders. However, the business income provision unambiguously covered only losses stemming from physical alteration or tangible dispossession of the property, which did not occur here, because plaintiff never lost physical control of its buildings or merchandise from its stores. The Period of Restoration clause, which stated that the policy only covered loss or damage that could be remedied by repairing, rebuilding, or replacing the affected property or by relocating the insured’s business, also supports this conclusion

Further, the virus exclusion precluded coverage “for loss or damage caused by or resulting from any virus, bacterium, or other microorganism,” and was not limited to instances where the virus was physically present at or on plaintiff’s property. Here, the dominant cause of plaintiff’s losses—the efficient proximate cause—was the outbreak and spread of COVID-19. Therefore, even if the losses were covered, the virus exclusion barred coverage under its plain language and the efficient proximate cause doctrine.

The dismissal was affirmed.

Official US Court of Appeals for the Tenth Circuit proceedings can be found at the US Court of Appeals for the Tenth Circuit website.

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