INSURANCE-RELATED COURT CASES

Digested from case reports published online

COURT DECISIONS

Bar seeks BI coverage for COVID shutdown

Jesse’s Embers, a restaurant and bar and restaurant in Des Moines, Iowa, made a claim under its business owners policy with Western Agricultural Insurance Company, doing business as Farm Bureau Financial. The claim was for business interruption coverage for the time period it was forced to close its business after the governor ordered bars and restaurants to shut down in response to the COVID-19pandemic. The claim was denied. Jesse’s Embers brought suit against Farm Bureau, and subsequently appealed the district court’s entry of summary judgment in favor of the insurer.

Jesse’s Embers claimed that the business income, extra expense, and civil authority provisions under the additional coverages portion of the policy provided coverage for its claim.

The policy’s additional coverage related to “business income” provides:

f. Business Income

(1) Business Income

(a) We will pay for 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 the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.

….

(b) We will only pay for loss of Business Income that you sustain during the “period of restoration” and that occurs within 12 consecutive months after the date of direct physical loss or damage.

The policy defines “period of restoration” to:

a. Mean[] the period of time that:

(1) Begins:

(a) 72 hours after the time of direct physical loss or damage for Business Income Coverage; or

(b) Immediately after the time of direct physical loss or damage for Extra Expense Coverage;

caused by or resulting from any Covered Cause of Loss at the described premises; and

(2) Ends on the earlier of:

(a) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or

(b) The date when business is resumed at a new permanent location.

Similarly, the Extra Expense provision states:

g. Extra Expense

(1) We will pay necessary Extra Expense you incur during the “period of restoration” that you would not have incurred if there had been no direct physical loss or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.

Last, the Civil Authority provision explains:

i. Civil Authority

When a Covered Cause of Loss causes damage to property other than property at the described premises, we will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises, provided that both of the following apply:

(1) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area but are not more than one mile from the damaged property; and

(2) The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property.

For the reasons provided below, the Supreme Court of Iowa concluded that the language “direct physical loss of or damage to Covered Property” required a physical aspect to the property loss before coverage is triggered. Because Jesse’s Embers relied solely on the loss of use of its property, without more, it failed to establish a loss within the policy’s coverage. For similar reasons, the court held that Jesse’s Embers’ claim failed under the civil authority coverage provision, which requires actual damage to nearby property before it provides coverage. The court affirmed the district court’s order granting summary judgment in Farm Bureau’s favor.

Jesse’s Embers, LLC, v. Western Agricultural Insurance Company d/b/a Farm Bureau Financial Services—Supreme Court of Iowa—April 22, 2022—No. 21-0623.