Among the recent decisions dismissing complaints for business interruption and civil authority coverage due to closures caused by COVID-19 are Pappy's Barber Shops, Inc. v. Farmers Group, Inc., 2020 U.S. Dist. LEXIS 166808 (S.D. Calif. Sept. 11, 2020) and Sandy Point Dental v. Cincinnati Insurance Co., 2020 U.S. Dist. LEXIS 171979 (E.D. Ill. Sept. 21, 2020). The difficulty in proving "direct physical loss" was the downfall of both cases.

    In Pappy's, claims were made for business income losses insured as a result of local and state closure orders. The policy required "direct physical loss of or damage to property at the described premises." Plaintiffs argued that "direct physical loss of" did not require a tangible damage or alteration to property and that the loss of the ability to continue operating their businesses as a result of the government orders met this requirement. 

    The court relied upon a prior decision, 10E, LLC v. Travelers Indem. Co. of Connecticut, 2020 U.S. Dist. LEXIS 165252 (C.D. Calif. Sept. 2, 2020) [post here], where the court noted that under California law, losses from inability to use property did not amount to "direct physical loss" within the meaning of the policy. 

    The claim under civil authority failed because the complaint did not allege that any of the orders prohibited plaintiffs from access to their business premises, but only alleged that plaintiffs were prohibited from operating their businesses. Further, the orders were not issued due to direct physical loss of or damage to property other than at plaintiffs' premises. 

    The result was similar in Sandy Point Dental. After shutdown orders, dental offices could only operate to provide emergency and non-elective work, but not routine work. Plaintiff did not allege that there was any demonstrable, physical alteration to the property. Instead, plaintiff argued the policy allowed for a partial loss to property from loss of use. But the court found that "direct physical loss" unambiguously required some form of actual, physical damage to the property. The words "direct" and "physical," which modified the word "loss," connoted actual harm of some form to the premises itself, rather than forced closure of the premises due to reasons extraneous to the premises itself. The property had not been altered since the shutdown orders and plaintiff did not have to make any repairs or change any part of the building to continue its business. 

    The civil authority claim failed for much the same reason. The complaint did not allege that the coronavirus caused direct physical loss to other property. Consequently, the motion to dismiss was granted.