The Covid-19 pandemic forced many companies to close their doors or temporarily reduce their operations. Many suffered serious financial losses as a result and have sought money under their commercial property insurance policies. In this case, under our diversity jurisdiction, we address two insurance coverage issues that arise as a result of the partial closure of the Ritz-Carlton Hotel in Dallas, Texas. In Crescent Plaza Hotel Owner, LP v. Zurich American Insurance Company No. 21-1316, United States Court of Appeals, Seventh Circuit (December 9, 2021), Seventh Circuit dealt with three Covid cases and no coverage was found and rejected creative arguments raised by the plaintiffs' lawyers.
FACTS AND PROCEDURE HISTORY
Covid-19 pandemic and closure order
When the covid-19 pandemic spread in the United States in March 2020, the Dallas County Government issued several orders restricting the activities of local businesses.  Complaining Crescent Plaza Hotel Owner, LP owns the Ritz-Carlton in Dallas. The hotel offers rooms and suites, a restaurant and bar, public event space and other amenities, including a lounge, spa and fitness center. Crescent claims that covid-19 made the air in the hotel unsafe and reduced the functional space available on the premises, which caused significant loss of revenue. Crescent also claims that it took costs to install plexiglass partitions and hand alcohol stations, to display signs throughout the hotel and to move furniture to enable social distancing. a general commercial property insurance to Marriott International – the operator of the hotel – for the period April 1, 2019 to April 1, 2020. Crescent claimed that its losses are covered by several different provisions, almost all of which require "direct physical loss or damage" to covered property. another one-year insurance for Marriott – again including Crescent as an additional insured – which took effect on April 1, 2020. That insurance was largely identical to the 2019 version, but it added an exemption for losses attributable to any communicable disease including On appeal, Crescent has offered no reason to doubt that this exclusion will block coverage under the 2020 policy. , fungi, spores or other microorganism of any type, nature or description , including but not limited to any substance whose presence poses a real or potential threat to human health. " 2020 policy coverage. Crescent sued for breach of contract and a declaratory judgment that its losses were covered by the insurance. Zurich decided to dismiss and the district court held that the phrase "direct physical loss or damage" requires either "a permanent [dispossession] of the property due to a physical change .. or physical ] damage on the property that requires repair. ” Since Crescent could not claim either, the court granted the application for inadmissibility.
The first question presented is whether Crescent has alleged direct physical loss or damage to its property. The Seventh Circuit concluded that it did not.
The exclusion of microorganisms in Crescent's policy provides a second, independent basis for denying coverage. Even if the district court did not take up the exclusion, a court of appeal can confirm on any basis supported by the protocol, as long as the other party had the opportunity to be heard in the matter.
Role of Exclusions
In an insurance case, the burden is initially the insured to show that its damages are covered. Once that showing has been made, the burden shifts to the insurer to establish that an exemption applies. Exclusions are read closely and only apply if their application is clear and free from doubt.
Exclusion of microorganisms
The exclusion of microorganisms occurs in both the 2019 and 2020 policies issued by Zurich for Crescent's hotels. Crescent does not deny that its alleged losses arose from and were related to the coronavirus. The question is whether the virus qualifies as a "micro-organism" under the terms of the exemption.
The existence of several dictionary definitions does not force the conclusion that a term is ambiguous. Nor does Crescent's assertion that viruses – unlike mold, fungi and the other categories specifically mentioned in the exemption – are not living and do not have cells. The question is how an ordinary reader or policyholder, not a scientist, would understand the term as it is used in insurance. An ordinary reader, unfamiliar with the nuances of microbiology classification debates, would probably not be able to deal with the virus' lack of cell structure to determine if the losses they cause fall under the exemption. The average policyholder would be puzzled by Crescent's theory that the exemption excludes losses caused by bacteria but not those caused by viruses.
The context in which the term "micro-organism" is used in this insurance confirms that the exemption unequivocally applies to viruses. The context and language clearly signal that the exemption applies to losses caused by viruses. The relevant language is deliberately broad, covers microorganisms of any type, nature or description, and applies broadly to all substances whose presence poses a real or potential threat to human health, which the coronavirus undeniably does.