On August 18, 2020, the United States Court of Appeals for the Eleventh Circuit upheld a 2018 court ruling that Sparta Insurance Company did not have to cover a South Florida restaurant for lost revenue and additional costs due to nearby road construction. But in doing so, the Court of Appeals seems to deviate from even its own understanding of "direct physical loss" under the control of Florida law.
In the underlying coverage measure, the insured, Mama Jo & # 39 ;s Inc., which carries in Grove, sought coverage under its "all risk" insurance policy for corporate income losses and incurred additional costs caused by construction dust and debris that migrated into the restaurant.
The district court found that Mama Jo & # 39 ;s did not show the "direct physical loss" or damage required under its insurance. The district court justified that "direct physical loss refers to an actual change of insured property then in a satisfactory condition, caused by an accident or other successful event directly on the property that causes it to be unsatisfactory for future use or requires repairs to be made to do so. " As a result, the district court ruled that direct physical loss did not occur because Mama Jo & # 39 ;s was able to clear the construction dust from its property and not cease its operations.
The Eleventh Circuit upheld the district court's decision regarding whether Mama Jo & # 39 ;s suffered "direct physical loss." In this way, the panel tried to assign meaning to the phrase "direct physical loss" by looking at definitions in the dictionary and previous case law that addressed the component terms of the phrase. By relying on Black & # 39 ;s Law Dictionary, rather than a source that can give a common everyday meaning, the panel decided that a "loss" is "the decrease in the value of something." The panel then relied on Florida's appeal decision to determine the effect of the terms "direct" and "physical" and concluded that these terms change "loss" and require that the damage be real. But the panel never ascertained the usual meaning of these undefined terms. In fact, Florida courts have argued that the simple meaning of "direct physical loss" is broader than losses that damage the structure of covered property and include situations where covered property becomes "uninhabitable" or essentially "unusable." See e.g. Azalea, Ltd. against American States Ins. Co. 656 So. 2d 600 (Fla. 1
Furthermore Mama Jo & # 39 ;s focuses on a specific set of facts where the insured claimed that the cause of the loss was construction dust that could be easily cleaned from the property. These allegations are not parallel to the well-equipped COVID-19 claims, which specifically eliminate the challenges of detecting, removing, or preventing exposure to COVID-19. Unlike dust, which can be easily detected visually, COVID-19 cannot be seen with the naked eye, and there are no known ways to test property (unlike humans) to determine if the virus is present. In fact, it is clear that COVID-19 is present in almost every property due to the pandemic. Partly because of these significant differences between dust and COVID-19, Mama Jo & # 39 ;s did not contain any accusations similar to those in well-preserved COVID-19 cases about the lack of easily accessible property tests. In fact, one of the key issues in Mama Jo & # 39 ;s the experienced experts apparently concerned erroneous decisions not to test the affected property to determine definitively whether the dust really resulted from the previous road work. Finally, unlike Mama Jo & # 39 ;s who continued to operate without interruption or disruption despite the building dust, COVID-19 and the resulting civilian authority decision forced thousands of insureds to close their doors and thus deprive the insured their intended use and render the properties substantially unusable.
Despite the clear differences between the dust in Mama Jo & # 39 ;s and the current COVID-19 pandemic, is Mama Jo & # 39 ;s decision that is likely to be praised of the insurance companies as a "gain" in support of the insurance industry's ongoing refusal to cover income losses from COVID-19. As the differences discussed above make clear, however, Mama Jo & # 39; s should be limited to its facts and even then approached with caution and skepticism given its obvious internal inconsistencies and its open failure to compose Florida law. .