Opinion ID: 6330499
Heading Depth: 2
Heading Rank: 1

Heading: Sandy Point Squarely Precludes Coverage

Text: 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  (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 indis- putably 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