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Several Michigan-based restaurants which hold a commercial property insurance policy brought a case against Cincinnati Insurance Company, arguing that they were entitled to reimbursement for the loss incurred on account of the business interruption caused by the COVID-19 outbreak and related stay-at-home orders.

On 27 January 2021, the District Court of Michigan dismissed their claims alleging that they had failed to prove that the virus caused actual property loss or damage. By decision of 23 February 2022, the Court of Appeals for the Sixth Circuit affirmed the first instance judgment, finding that the policies in question clearly required that the insured properties had suffered direct physical loss. While plaintiffs alleged harm to individuals and to the business’ economic state – the Court said – they did not allege that the property had been physically altered by the virus. The Court highlighted that “a sufficient complaint alleging that the COVID-19 virus itself damaged an insured property would likely, at a minimum: (i) include allegations that COVID-19 was present at the covered property; (ii) include allegations that COVID-19 materially altered all or part of the property; and (iii) seek specific damages for replacing that property and only for the time that property was damaged or lost”.

This ruling follows a general trend from Federal Courts, the majority of which has so far held that the loss of use of property because of government closure orders due to the pandemic does not constitute a direct physical loss of property to trigger coverage. Nonetheless, as already reported, in few cases State Courts have started ruling differently than Federal Courts in this respect.

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