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Seventh Circuit Denies COVID-Shutdown Insurance Coverage to Movie Exhibitor

The U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of a North Carolina-based movie theaters operator's lawsuit that sought coverage from its insurer for revenue losses from state-mandated shutdowns during the COVID-19 pandemic. East Coast Entertainment of Durham LLC (ECE) v. Houston Casualty Co. (HCC), 21-2947. The "business income" clause of the policy ECE purchased from HCC stated: "We will pay the actual loss of Business Income you sustain due to the necessary 'suspension' of your 'operations' during the 'period of restoration.' The 'suspension' must be caused by direct physical loss of or damage to property at premises that are described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations." Noting the majority view that has developed among federal appeals courts on the issue, the Seventh Circuit noted: "Shortly after ECE filed its opening brief on appeal, we issued our opinion in Sandy Point Dental P.C. v. Cincinnati Insurance Co., 20 F.4th 327 (7th Cir. 2021). In Sandy Point, we joined four other circuits in concluding that mere loss of use due to COVID-related closures does not constitute 'direct physical loss' when unaccompanied by any physical alteration to property … Since then, three other circuits have joined this consensus, and no court of appeals has held otherwise." The Seventh Circuit concluded in East Coast Entertainment: "Try as it might, ECE similarly fails to allege a physical alteration of its property. The mere presence of the [COVID] virus on surfaces did not physically alter the property, nor did the existence of airborne particles carrying the virus. ECE does not allege that it needed to 'repair[], rebuil[d] or replace[]' any structures or items on the premises, or that its business 'resumed at a new permanent location,' as contemplated in the Policy's 'period of restoration' definition. In short, the district court properly concluded that ECE was not entitled to coverage under the Policy."