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Sagome, Inc. v. Cincinnati Insurance Co.

No. 21-1359. 1/3/2023. D.Colo. Judge Tymkovich. COVID-19 Pandemic—Government Shutdowns of Businesses—Comprehensive General Insurance Coverage—Physical Loss—Civil Authority Coverage.

January 2, 2023


Sagome, Inc. operated a restaurant that Cincinnati Insurance Company (Cincinatti) insured under a comprehensive general insurance policy (the policy). Government orders issued because of the COVID-19 pandemic caused Sagome to temporarily close, and it suffered significant financial losses from reduced customer traffic. Sagome provided timely notice of its losses to Cincinnati to recover under the policy. Cincinnati denied coverage because COVID-19 did not impose physical loss or damage as required by the policy. Sagome sued, alleging breach of contract, bad faith, and violation of Colorado insurance law, and sought a declaratory judgment that its losses were covered. The district court concluded that (1) COVID-19 did not physically damage Sagome’s property; and (2) no neighboring properties suffered physical loss triggering coverage, so Sagome was not entitled to civil authority coverage. The court dismissed the case with prejudice.

On appeal, Sagome argued that its insurance policy covered losses resulting from the pandemic because under the policy, physical loss or damage includes loss of use when property is rendered unsafe and dangerous. The policy provided that Cincinnati would pay for property loss caused by or resulting from a covered cause of loss, and it defined “loss” as accidental physical loss or accidental physical damage. The policy also covered lost business income for operations suspended during a restoration period and included civil authority coverage, which was triggered when a covered loss damaged property not covered by the policy, causing the government to prohibit access to Sagome’s property. Accordingly, under the policy’s plain language, for Sagome to be covered, COVID-19 had to injure or harm its property in some physical manner; the loss or damage itself had to be physical, not simply stem from something physical. However, COVID-19 does not physically injure or harm property, and Sagome’s property was never rendered uninhabitable or unusable. Consequently, Sagome did not suffer a total or even partial physical loss. Further, the civil authority clause is inapplicable because Sagome only alleged that COVID-19 damaged other property, which was not a covered loss.

Sagome also requested that the Tenth Circuit ask the Colorado Supreme Court whether COVID-19’s presence constitutes physical loss or damage under an insurance policy governed by Colorado law. The Tenth Circuit noted that every circuit to have addressed this question found that COVID-19 does not cause physical loss or damage, and it distinguished the Colorado caselaw Sagome relied on. Because the Tenth Circuit could rely on relevant precedent from Colorado and other jurisdictions to answer the determinative state law question, it determined certification was unnecessary.

The order was affirmed and the certification motion was denied.

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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