In the

United States Court of Appeals

For the Seventh Circuit ____________________ 

No. 21-2947 

EAST COAST ENTERTAINMENT OF DURHAM, LLC, 

Plaintiff-Appellant, 

v.

HOUSTON CASUALTY COMPANY and AMERICAN CLAIMS

MANAGEMENT, INC., 

Defendants-Appellees. 

____________________ 

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 1:20-cv-06551 — Joan B. Gottschall, Judge. 

____________________ 

ARGUED MARCH 29, 2022 — DECIDED APRIL 12, 2022 

____________________ 

Before FLAUM, ST. EVE, and JACKSON-AKIWUMI, Circuit 

Judges. 

ST. EVE, Circuit Judge. East Coast Entertainment of 

Durham, LLC (“ECE”) owns and operates movie theaters in 

North Carolina. Like many businesses, ECE lost money after 

the Governor of North Carolina imposed statewide closures 

in response to COVID-19. ECE submitted a claim for coverage 

under its insurance policy with Houston Casualty Company
2 No. 21-2947 

(“HCC”). HCC and American Claims Management (“ACM”), 

its claims administrator, denied the claim, and ECE brought 

this suit for declaratory relief and damages in Illinois state 

court. Defendants removed the case to federal court under

diversity jurisdiction,1 and the district court granted their 

motion to dismiss, concluding that ECE failed to allege a 

physical alteration of its property. Because our recent decision 

in Sandy Point Dental, P.C. v. Cincinnati Insurance Co., 20 F.4th 

327 (7th Cir. 2021), squarely governs this suit, we affirm.

I. Background

ECE’s insurance policy with HCC includes the following 

“Business Income” coverage provision:

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. The loss or damages must be caused by or result from a Covered 

Cause of Loss.

(Emphasis added). The “period of restoration” is the period 

between “the date of direct physical loss or damage to the 

property” and either “[t]he date when the property should be 

1 The amount in controversy is not in dispute, and the parties are diverse: 

ECE is a citizen of South Carolina because the sole member of the LLC is 

domiciled in South Carolina. HHC is a Texas citizen, and ACM is a California citizen.
No. 21-2947 3

repaired, rebuilt or replaced with reasonable speed and similar quality” or “when business is resumed at a new permanent location,” whichever occurs first.

A “Civil Authority” provision similarly covers “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 due to direct physical loss of or damage 

to property, other than at the described premises, caused by or 

resulting from any Covered Cause of Loss.” (Emphasis 

added). 

ECE sued for a declaratory judgment in favor of coverage, 

as well as damages for bad-faith denial of coverage. ECE 

contends the provisions above cover economic losses due to

COVID-related closures because the virus rendered ECE’s 

property unsafe. The complaint alleges, for example, that the 

virus can be “transmitted by way of human contact with 

surfaces and items of physical property located at premises in 

North Carolina.” The complaint also alleges: “It is likely that 

airborne SARS-CoV-2 particles have been physically present 

at Plaintiff’s premises ... during the time the policy was in 

effect.”

Defendants moved to dismiss the complaint for failure to 

state a claim, arguing that the Policy does not provide coverage because ECE’s economic losses stem from the Governor’s 

executive orders, not any physical alteration of or damage to 

property. The district court agreed and granted their motion 

to dismiss with prejudice. Because ECE’s bad-faith denial of 

coverage claim depended upon the coverage determination, 

that claim failed as well. The district court further concluded 

that ECE failed to show a conflict between Illinois law and 
4 No. 21-2947 

North Carolina law regarding the plain and ordinary meaning of “direct physical loss,” so Illinois law applied.

II. Discussion

We review de novo the grant of a motion to dismiss for 

failure to state a claim. Crescent Plaza Hotel Owner, L.P. v. Zurich Am. Ins. Co., 20 F.4th 303, 307 (7th Cir. 2021). A federal 

court sitting in diversity applies the choice-of-law rules of the 

forum state, here Illinois. Sosa v. Onfido, Inc., 8 F.4th 631, 637 

(7th Cir. 2021). In the absence of an actual conflict between 

Illinois law and the law of another state, the substantive law 

of Illinois applies. Id. ECE, as the party seeking a choice-oflaw determination, bears the burden of demonstrating that a

conflict exists. Id. 

Courts applying Illinois law aim to “ascertain the parties’ 

intent” by first consulting “the plain and ordinary meaning of 

the contract language.” Am. Bankers Ins. Co. of Fla. v. Shockley, 

3 F.4th 322, 327 (7th Cir. 2021) (internal quotation marks omitted). “Undefined terms will be given their plain, ordinary, 

and popular meaning; i.e., they will be construed with reference to the average, ordinary, normal, reasonable person.” 

Sproull v. State Farm Fire & Cas. Co., ___ N.E.3d ___, 2021 IL 

126446, ¶ 19. If an insurance policy is unambiguous, the court 

must apply its terms as written. Crescent Plaza Hotel, 20 F.4th 

at 308. Mere “disagreement between the parties as to meaning 

does not itself make the policy ambiguous, and the court ‘will 

not strain to find an ambiguity where none exists.’” Id. (quoting Founders Ins. Co. v. Munoz, 930 N.E.2d 999, 1004, 237 Ill. 2d 

424 (2010)).
No. 21-2947 5

A. Sandy Point Squarely Precludes Coverage

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. Id. at 330, 333 (applying Illinois law and collecting cases).2 On the same day, we reached an identical conclusion in two similar cases. See Bradley Hotel Corp. v. Aspen 

Specialty Ins. Co., 19 F.4th 1002, 1004–05 (7th Cir. 2021) (applying Illinois law); Crescent Plaza Hotel, 20 F.4th at 306 (same). 

Since then, three other circuits have joined this consensus, and 

no court of appeals has held otherwise.3

The policy provisions at issue in Sandy Point are materially 

indistinguishable from ECE’s policy. See Sandy Point, 20 F.4th 

at 330–31. As we explained in Sandy Point: 

The phrase is “direct physical loss or damage.” 

The words “direct physical” are most sensibly 

read as modifying both “loss” and “damage.” 

2 Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398, 401–03 (6th Cir. 

2021) (applying Ohio law); Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 

1141, 1144 (8th Cir. 2021) (applying Iowa law); Mudpie, Inc. v. Travelers Cas. 

Ins. Co., 15 F.4th 885, 892 (9th Cir. 2021) (applying California law); Gilreath 

Family & Cosmetic Dentistry, Inc. v. Cincinnati Ins. Co., No. 21-11046, 2021 

WL 3870697, at *2 (11th Cir. Aug. 31, 2021) (applying Georgia law). 

3 Goodwill Indus. of Cent. Okla., Inc. v. Phila. Indemn. Ins. Co., 21 F.4th 704, 

709 (10th Cir. 2021) (applying Oklahoma law); 10012 Holdings, Inc. v. Sentinel Ins. Co., Ltd., 21 F.4th 216, 220 (2d Cir. 2021) (applying New York law); 

Terry Black’s Barbecue, L.L.C. v. State Auto. Mut. Ins. Co., 22 F.4th 450, 455 

(5th Cir. 2022) (applying Texas law).
6 No. 21-2947 

But even if they can be divorced from “damage” 

(and we do not think that they can), they indisputably modify “loss.” ... Whatever “loss” 

means, it must be physical in nature.

Id. at 332. “Even if the virus was present and physically attached itself to Sandy Point’s premises, Sandy Point does not 

allege that the virus altered the physical structures to which it 

attached, and there is no reason to think that it could have 

done so.” Id. at 335. Because the businesses in Sandy Point “alleged neither a physical alteration to property nor an accessor use-deprivation so substantial as to constitute a physical 

dispossession,” they failed to state a claim for coverage. Id. 

at 337. 

Try as it might, ECE similarly fails to allege a physical alteration of its property. The mere presence of the 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.

Because ECE does not have a valid claim for coverage, its 

bad-faith denial of coverage claim necessarily fails as well. See 

Sandy Point, 20 F.4th at 337 (“[The insurer] could not have 

been fraudulent or vexatious in denying coverage where adequate grounds for coverage did not exist in the first place.”).
No. 21-2947 7

B. There is No Conflict of State Law

The growing national consensus regarding the meaning of 

“direct physical loss” underscores that this case does not turn 

on variations in state contract law. To the extent that ECE still 

argues there is a conflict between Illinois law and North Carolina law, it has not satisfied its burden. See Sosa, 8 F.4th at 

637. Both Illinois and North Carolina courts look to the plain 

and ordinary meaning of terms in an insurance policy; where, 

as here, those terms are unambiguous, there is no need to construe them against the insurer. See, e.g., Register v. White, 599 

S.E.2d 549, 553, 358 N.C. 691 (2004). Tellingly, multiple federal 

district courts applying North Carolina law in COVID-19 insurance cases have reached the same conclusion as Sandy

Point.4 In the absence of any conflict, Illinois law applies. 

III. Conclusion

For the foregoing reasons, the district court’s judgment is

AFFIRMED. 

4 See, e.g., Death & Taxes, LLC v. Cincinnati Ins. Co., No. 5:21-CV-125-D, 2022 

WL 337196, at *1 (E.D.N.C. Feb. 2, 2022) (citing Sandy Point, 20 F.4th at 330–

34); Golden Corral Corp. v. Ill. Union Ins. Co., ___ F. Supp. 3d ___, 2021 WL 

4097684, at *6–8 (E.D.N.C. Sept. 8, 2021); Summit Hosp. Grp., Ltd. v. Cincinnati Ins. Co., No: 5:20-CV-254-BO, 2021 WL 831013, at *3–4 (E.D.N.C. Mar. 

4, 2021). Appeals are pending in all three cases, so the Fourth Circuit has 

not yet weighed in.