United States of America, United States Court of Appeals for the Fourth Circuit, 7 March 2022, No. 21-1311
Case overview
Country
Case ID
Decision date
Deciding body (English)
Type of body
Type of Court (material scope)
Type of jurisdiction
Type of Court (territorial scope)
Instance
Area
Further areas addressed
Outcome of the decision
Link to the full text of the decision
General Summary
The plaintiff, an insured company, sought coverage for its loss of business income resulting from the COVID-19 pandemic and from the government orders to temporarily close non-essential businesses. Following a denial of coverage by the defendant, the plaintiff filed a class action on behalf of itself and similarly situated plaintiffs. The defendant filed a motion to dismiss, which the district court granted. The Court considered that the insured did not establish that its suspension of operations was caused by direct physical damage to the property. The plaintiff appealed to the Court of Appeals, which analyzed the arguments of the parties and affirmed the District Court decision.
Facts of the case
The plaintiff operated a "creative events" business at two art studio locations, in Barboursville, West Virginia and in Charleston, West Virginia. On March 16, 2020, the Governor of West Virginia declared a state of emergency based on the Covid-19 pandemic. One week later, the Governor issued an executive order requiring that non-essential businesses in West Virginia "temporarily cease operations" (the closure order). The closure order permitted businesses to continue efforts to maintain inventory, "preserve the condition of the business's physical plant and equipment," ensure security, process payroll and employee benefits, and facilitate employees' ability to "work remotely from their residences." In compliance with the closure order, Uncork closed its two art studios. These closures caused Uncork to suffer "a substantial loss of business income" and other unspecified financial losses. When permitted to do so, Uncork re-opened its Charleston studio on June 11, 2020. However, Uncork permanently closed its Barboursville studio on April 24, 2020.
Type of measure challenged
Measures, actions, remedies claimed
Individual / collective enforcement
Nature of the parties
Claimant(s)
Private individualDefendant(s)
Private individual
Type of procedure
Reasoning of the deciding body
The Court argued that the policy used the phrase “direct physical loss of or damage to property,” and that the plaintiff did not establish that its suspension of operations was caused by direct physical damage to the property or by direct physical loss of property. It reasoned that there was no ambiguity in the insurance contract and that the case law widely supported the interpretation that Government orders to close non-essential businesses during the pandemic did not trigger this kind of insurance policy.
Conclusions of the deciding body
The Court did not identify any direct physical damage to property that caused it to suspend operations. Therefore the business income coverage was not triggered.
Fundamental Right(s) involved
- Freedom to conduct a business
- Right to property
Rights and freedoms specifically identified as (possibly) conflicting with the right to health
- Health v. freedom to conduct a business
- Health v. property
General principle applied
Balancing techniques and principles (proportionality, reasonableness, others)
The Court argued that the principles of contractual interpretation did not lead to a scenario where the claim of the plaintiff should be upheld. The Court concluded that it was not possible to interpret the insurance contract in a way that would cover the damages suffered for the suspension of operations due to State administrative orders during the pandemic.
