Opinion ID: 6325653
Heading Depth: 2
Heading Rank: 1

Heading: Direct Physical Loss of or Damage to Property

Text: We conclude the Louisiana Supreme Court would interpret “direct physical loss of or damage to property” to cover only tangible alterations of, injuries to, and deprivations of property. Because the mandated closure of 7 Case: 21-30278 Document: 00516248556 Page: 8 Date Filed: 03/22/2022 No. 21-30278 Q Clothier’s stores is none of these, Q Clothier has failed to allege facts to trigger coverage under the policy. The policy’s general coverage, Business Income Extension, and Limited Virus Coverage, are each triggered by “direct physical loss of or damage to property.” The Louisiana Supreme Court has not opined on this language, but other courts have interpreted similar language. And we find these other courts’ analyses persuasive here. In Mangerchine v. Reaves, a Louisiana appellate court interpreting a homeowners insurance policy stated the ordinary and generally-accepted meaning of “loss” is “destruction, ruin, or deprivation.” 63 So. 3d 1049, 1056 (La. Ct. App. 2011) (internal quotation marks and citation omitted). In Widder v. Louisiana Citizens Property Insurance Corp., a Louisiana appellate court determined lead contamination constituted a “direct physical loss” because the contamination rendered the insured property uninhabitable until it was gutted and remediated. See 82 So. 3d 294, 296 (La. Ct. App. 2011), writ denied, 76 So. 3d 1179 (La. 2011). Although there was no physical damage, the property was unusable or uninhabitable and therefore qualified as a direct physical loss. See id. And because the property was required to be removed and replaced, that fact suggested the insured had suffered a direct physical loss. See id.; see also Ross v. C. Adams Const. & Design, L.L.C., 70 So. 3d 949, 952 (La. Ct. App. 2011) (concluding insured suffered direct physical loss even though drywall was intact and functional because the qualities of the drywall required it to be removed and replaced). In Trinity Industries, Inc. v. Insurance Company of North America, this court applied Louisiana law and stated “[t]he language ‘physical loss or damage’ strongly implies that there was an initial satisfactory state that was changed by some external event into an unsatisfactory state—for example, the car was undamaged before the collision dented the bumper.” 916 F.2d 8 Case: 21-30278 Document: 00516248556 Page: 9 Date Filed: 03/22/2022 No. 21-30278 267, 270–71 (5th Cir. 1990). We interpreted the language pursuant to Louisiana law, and that definition has been followed in Texas, as well. See N. Am. Shipbuilding, Inc. v. S. Marine & Aviation Underwriting, Inc., 930 S.W.2d 829, 834 (Tex. App. 1996) (“The Trinity standards are also followed in Texas.”); Great Am. Ins. Co. of N.Y. v. Compass Well Servs., LLC, No. 02-1900373, 2020 WL 7393321, at  (Tex. App. Dec. 17, 2020). In Terry Black’s Barbecue, L.L.C. v. State Automobile Mutual Insurance Co., we applied Texas law to a similar insurance policy and interpreted “physical loss of property” to mean a tangible alteration or deprivation of property. 22 F.4th 450, 458 (5th Cir. 2022). We accordingly held that losses caused by civil authority orders closing nonessential businesses in response to the COVID-19 pandemic were not covered by commercial property policies. See id.; see also Aggie Investments, L.L.C. v. Cont’l Cas. Co., 2022 WL 257439, at  (5th Cir. Jan. 26, 2022) (applying Terry Black’s and concluding intangible losses from pandemic closures did not qualify as “direct physical loss of property”). Although we applied Texas law in Terry Black’s, we are persuaded Texas and Louisiana courts would reach the same conclusion regarding the interpretation of the language in these policies. See, e.g., Aggreko, L.L.C. v. Chartis Spec. Ins. Co., 942 F.3d 682, 688 (5th Cir. 2019) (“[W]e note that . . . we are unaware of[] any pertinent difference between Texas law and Louisiana law with respect to interpreting insurance policies.”). Considering this case law and the unambiguous 3 meaning of “direct physical loss of or damage to property,” we conclude Q Clothier’s losses are not covered by the policy’s general coverage, Business Income Extension, or 3 We accordingly deny Q Clothier’s motion to certify the question to the Louisiana Supreme Court. Q Clothier’s motion for leave to file a supplemental motion to certify the question is denied as moot. 9 Case: 21-30278 Document: 00516248556 Page: 10 Date Filed: 03/22/2022 No. 21-30278 Limited Virus Coverage. Q Clothier has only alleged a loss of business income due to its compliance with the civil authority orders directing the close of its stores. But that loss is not tangible. Nor is it an alteration, injury, or deprivation of property. Q Clothier’s property has been unchanged by the orders or the close of its stores. Although we recognize the government orders placed limitations on the operations of businesses, those limitations did not tangibly alter Q Clothier’s property or deprive Q Clothier of its property. As we said in Terry Black’s, this conclusion is consistent with every other circuit court to interpret this language in the context of losses caused by civil authority orders closing nonessential businesses during the COVID-19 pandemic. See 22 F.4th at 456–57 (citing cases); see also Uncork & Create LLC v. Cincinnati Ins. Co., -- F.4th --, No. 21-1311, 2022 WL 662986, at  (4th Cir. Mar. 7, 2022) (concluding government-mandated business closures were not covered because they did not cause “present or impending material destruction or material harm that physically altered the covered property requiring repairs or replacement so that they could be used as intended”); Brown Jug, Inc. v. Cincinnati Ins. Co., -- F.4th --, No. 21-2644, 2022 WL 538221, at  (6th Cir. Feb. 23, 2022) (“[A] sufficient complaint alleging that the COVID-19 virus itself damaged an insured property would likely, at a minimum: (1) include allegations that COVID-19 was present at the covered property; (2) include allegations that COVID-19 materially altered all or part of the property; and (3) seek specific damages ‘for replacing that property and only for the time that property was damaged or lost.’” (citation omitted)). Although these cases are nonbinding and applied different states’ laws, we find no reason to conclude the Louisiana Supreme Court would interpret the policy differently. Despite this unambiguous meaning, Q Clothier equates its losses to those in the Chinese drywall cases in which some Louisiana courts 10 Case: 21-30278 Document: 00516248556 Page: 11 Date Filed: 03/22/2022 No. 21-30278 determined the loss was a covered “physical loss” even in the absence of “physical damage.” See, e.g., In re Chinese Man. Drywall Prods. Liab. Litig., 759 F. Supp. 2d 822, 831–32 (E.D. La. 2010). In those cases, courts determined the drywall was a “physical loss” even though it was intact and undamaged. See, e.g., Ross, 70 So. 3d at 952. Importantly, the drywall still had to be removed and replaced in the property. See id. The courts also noted the drywall made the property unusable or uninhabitable due to the emission of sulfur gases. See In re Chinese Man. Drywall Prods. Liab. Litig., 759 F. Supp. 2d at 832. One court determined the drywall, although not damaged, constituted a “distinct, demonstrable, physical alteration” of the insureds’ property. See id. at 831. The losses in those cases are distinguishable from Q Clothier’s claimed losses here. Unlike the drywall cases, Q Clothier has not alleged that any property needs to be removed or replaced due to COVID-19’s presence in its stores. Nor has it alleged that its property was unusable or uninhabitable because of COVID-19. Rather, the pandemic caused civil authorities to proclaim it unsafe for people to gather indoors including in stores like Q Clothier’s. But COVID-19 itself did not make Q Clothier’s stores inherently dangerous or uninhabitable like the drywall. Q Clothier’s reliance on the drywall cases is therefore misplaced. Because we conclude the plain and ordinary meaning of “physical loss of or damage to property” is a tangible alteration to, injury to, or deprivation of property, Q Clothier’s claimed losses do not qualify for coverage under the policy’s general coverage, Business Income Extension, or Limited Virus Coverage.