On July 2, the Eighth Circuit became the first Appellate court to consider and rule on business interruption insurance coverage in the wake of the COVID-19 pandemic, and issued a ruling in Oral Surgeons PC v. The Cincinnati Insurance Co., No. 20-3211, 2021 U.S. App. LEXIS 19775 (8th Cir. July 2, 2021). The court ruled that the lower court did not err in dismissing the suit brought by Oral Surgeons' on the basis that it failed to plead any physical alteration to the property.

As one of more than 1,600 COVID-19 business interruption lawsuits nationwide, this case could set the precedent for ongoing business interruption litigation, forthcoming appeals and subsequent rulings on this issue. The editors here at the Insurance Coverage Law Center have capitalized on our relationship with some insurance industry thought leaders, and posed some questions to them regarding the appeal. Below are some of their answers.

M.C. Sungaila, leader of Buchalter's Appellate Law Practice Group, noted that "[a]ll eyes are certainly on this first federal appellate decision concerning COVID business interruption insurance coverage. The question is what kind of preclusive impact it will have on other pending coverage cases. The answer is- a limited one.

There are two key takeaways from the decision.

One: Each of these coverage cases will ultimately pivot on state law- here, Iowa law- and where that law is unclear, some federal appellate courts may certify those issues to state supreme courts before issuing their decisions.

Two: In the Eighth Circuit case, there was no showing of direct physical loss from the presence of coronavirus on the property; other pending coverage actions plead that, which may lead to a different coverage determination."

Similarly, Micah Skidmore, partner at Haynes and Boone provided the following comments on the Eighth Circuit's decision.

"The Eighth Circuit's decision in Oral Surgeons, P.C. v. The Cincinnati Insurance Company, is unlikely to have a material impact on other pending cases, particularly outside of the 8th Circuit.

The case came to the Eighth Circuit on a motion to dismiss granted by the lower court, based on Oral Surgeons' allegations that "the COVID-19 pandemic and related government-imposed restrictions on performing non-emergency dental procedures constituted a "direct 'loss' to property" because Oral Surgeons was unable to fully use its offices."

The Eighth Circuit also relied heavily on prior decisions in Pentair, Inc. v. Am. Guar. & Liab. Ins. Co., 400 F.3d 613 (8th Cir. 2005) and Source Food Tech., Inc. v. U.S. Fid. & Guar. Co., 465 F.3d 834 (8th Cir. 2006) to conclude that loss of use or functionality, absent physical alteration, physical contamination, or physical destruction, does not constitute "physical loss" or "physical damage."

Because the Eighth Circuit was limited to the specific allegations asserted by Oral Surgeons, this decision will not have any impact on suits that allege alternative facts beyond the loss of utility. In particular, for suits alleging the presence of the SARS-CoV-2 virus on insured premises, the evolving science relating to COVID-19 makes the existence of "physical loss or damage," including physical alteration of air and solids, undeniable.

Even for those suits alleging loss of use or functionality, because the 8th Circuit relied for its decision on prior opinions in Pentair and Source Foods, Oral Surgeons will have no impact on other lawsuits in other courts not bound by this or similar precedent."

Editor's Note: I think commentary on this Appellate decision will be similar across the board. Every case will need to be decided on its own merits, and while this decision may resonate throughout Iowa, it will likely not otherwise have a far-reaching influence.

These views are the author's own.