Henry's Louisiana Grill, Inc. v. Allied Insurance Company of America

USCA11 Case: 20-14156 Date Filed: 06/03/2022 Page: 1 of 8
[PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 20-14156
____________________
HENRY’S LOUISIANA GRILL, INC.,
HENRY’S UPTOWN LLC,
Plaintiffs-Appellants,
versus
ALLIED INSURANCE COMPANY OF AMERICA,
Defendant-Appellee.
____________________
Appeal from the United States District Court
for the Northern District of Georgia
D.C. Docket No. 1:20-cv-02939-TWT
____________________
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2 Opinion of the Court 20-14156
Before GRANT, LUCK, and ANDERSON, Circuit Judges.
GRANT, Circuit Judge:
Since the beginning of the Covid-19 pandemic, businesses
across the country have sought to recoup losses from their insurers.
But a common problem with that approach has been that the
businesses’ insurance policies protect against only “direct physical
loss of or damage to” business property. So far, every federal and
state appellate court to consider the issue (including this one) has
held that the presence of Covid-19 causes a business’s property
intangible harm, rather than direct physical harm. That means
Covid-related expenses and losses are not covered. Because
Georgia law leads to the same result, we affirm.
I.
When the first influx of Covid-19 cases appeared in Georgia
in March 2020, the governor declared a public state of emergency.
As officials scrambled to respond, the owners of Henry’s Louisiana
Grill played their part by suspending dine-in service at their
restaurant.
To recover the income it was losing by closing its doors,
Henry’s quickly filed a claim with its insurer, Allied Insurance
Company of America. Under Henry’s “Premier Businessowners
Property Coverage” policy, Allied agreed to “pay for direct physical
loss of or damage to Covered Property” if it was “caused by or
resulting from any Covered Cause of Loss.” And it would “pay for
the actual loss of ‘business income’” due to the suspension of
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20-14156 Opinion of the Court 3
Henry’s operations in two circumstances. First, the Business
Income provision covered suspensions “caused by direct physical
loss of or damage to property at the described premises.” These
payments would last for a “period of restoration” following that
loss or damage—time allotted for the property to “be repaired,
rebuilt or replaced with reasonable speed and similar quality”—
unless, of course, the business “resumed at a new permanent
location” first.
Second, the Civil Authority provision covered interruptions
caused by an “action of civil authority” that prohibited “access” to
Henry’s as part of its “response to dangerous physical conditions”
on nearby property—but only if those conditions resulted “from
the damage or continuation of the Covered Cause of Loss that
caused the damage” to that other property. A “Covered Cause of
Loss,” in turn, was defined as a “direct physical loss” of property.
Allied denied coverage. It found that Henry’s closure was
not caused by any “direct physical loss or damage.” And under the
policy’s Virus or Bacteria exclusion, Allied refused to “pay for loss
or damage caused directly or indirectly” by any “virus.”
Like many other businesses, Henry’s sued. It argued that it
suffered a “physical loss of” property when it lost the use of its
dining room during the Covid-19 closure. Its alternative argument
was that Allied needed to reimburse its losses under the Civil
Authority provision because the governor had restricted access to
the area based on what Henry’s considered to be physical damage
to nearby properties—Covid-19 contamination.
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4 Opinion of the Court 20-14156
The district court dismissed Henry’s complaint for failure to
state a claim. It held that no “direct physical loss of or damage to”
property occurred because the restaurant and its dining room
“underwent no physical change.” And even assuming that nearby
property “had been damaged by the virus,” the court explained, the
governor’s order had not limited “access” to the surrounding area.
Henry’s now appeals.
II.
We review a dismissal for failure to state a claim de novo,
accepting the complaint’s factual allegations as true and construing
them in the light most favorable to the plaintiffs. Wildes v.
BitConnect Int’l PLC, 25 F.4th 1341, 1345 (11th Cir. 2022).
III.
Even though Henry’s claims that it has coverage under two
provisions, no one disputes that both require a “direct physical
loss” of or “damage” to property—either Henry’s property or
nearby property. This case, then, turns on one question. Does the
presence of Covid-19, or a related closure after a declaration of
public emergency, result in “direct physical loss of or damage to” a
property?
We interpret the policy under Georgia law and “begin, as
with any contract, with the text of the contract itself.” 1 Reed v.
Auto-Owners Ins. Co., 284 Ga. 286, 287 (2008). We read the policy
1 Like both parties, we assume that Georgia law governs this contract.
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as a layman would read it. York Ins. Co. v. Williams Seafood of
Albany, Inc., 273 Ga. 710, 712 (2001). In doing so, we must also
“consider the insurance policy as a whole” and “attempt to
harmonize the provisions with each other.” Nat’l Cas. Co. v.
Georgia Sch. Bds. Ass’n-Risk Mgmt. Fund, 304 Ga. 224, 228 (2018).
The “natural, obvious meaning” of a term “is to be preferred over
any curious, hidden meaning which nothing but the exigency of a
hard case” would suggest. Payne v. Middlesex Ins. Co., 259 Ga.
App. 867, 869 (2003) (quotation omitted). When the terms are
unambiguous, we simply apply them “as written.” Reed, 284 Ga.
at 287.
The Court of Appeals of Georgia has already laid out the
groundwork on this issue, so we start there. See McMahan v. Toto,
311 F.3d 1077, 1080 (11th Cir. 2002) (absent a state supreme court
decision, we generally follow state intermediate-appellate court
decisions on issues of state law). It interpreted a nearly identical
phrase—“direct physical loss of, or damage to”—while reviewing a
business’s all-risk personal-property insurance policy. AFLAC Inc.
v. Chubb & Son, Inc., 260 Ga. App. 306, 307 (2003). Based on the
“common meaning of the words” and how they fit in with the rest
of the policy, it held that the term required proof of “an actual
change in insured property.” Id. at 308. Being “physical” meant
that the loss or damage had to make the property “unsatisfactory
for future use” or meant that the property would need “repairs”
before it would be usable again. See id. So under Georgia law, a
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6 Opinion of the Court 20-14156
“direct physical loss” always involves a tangible change to a
property.
Henry’s alleges no actual change to its property. Even if we
assume that the governor’s Covid-19 order caused loss because it
deprived the restaurant of the use of its property, that does not
result in a win for Henry’s. Allied agreed to provide for only one
manner of loss—the physical loss of Henry’s property. To be
physical, the loss itself must be “of or relating to things perceived
through the senses as opposed to the mind”; it must be “tangible
or concrete.” New Oxford American Dictionary 1321 (3d ed. 2010).
Henry’s has alleged nothing of this sort.
Henry’s tries to spin its loss as physical—it says it “lost, or
was otherwise deprived of,” a “physical space.” A restaurant’s
dining room, no doubt, is a physical space. But even if the
governor’s order restricted the dining room’s use, that had no
physical effect on the property. It did not destroy, ruin, or even
damage any part of the restaurant. Because Henry’s cannot
identify any “actual change” to its property, it suffered no physical
loss. See AFLAC Inc., 260 Ga. App. at 308.
No matter, says Henry’s, because the Civil Authority
provision was triggered by the Covid-19 virus itself. But like the
Business Income provision, that provision covers only harms
caused by a “direct physical loss” of property. See Assurance Co.
of Am. v. BBB Serv. Co., 265 Ga. App. 35, 36 (2003). Henry’s claims
that all the requirements were satisfied because the governor’s
order was issued in response to the “community spread of COVID-
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20-14156 Opinion of the Court 7
19,” which “damaged” other properties by contaminating them.
But what Henry’s fails to allege is that the virus effected any actual,
physical change on the nearby properties. The mere presence of
the virus in other restaurants or businesses did not destroy or ruin
those properties. 2
Finding that Henry’s suffered no “physical loss of” property
lines up with the rest of the policy. Another limit on Business
Income coverage is that it only lasts until the lost or damaged
property is “repaired, rebuilt or replaced.” Covering costs while a
business is brought back into working order confirms that a
“physical loss of” property must involve tangible change to the
property.
We are not alone in our conclusion; the same one has been
reached by every federal and state appellate court to decide “the
meaning of ‘physical loss of or damage to’ property (or similar
language) in the context of the COVID-19 pandemic.” SA Palm
Beach, LLC v. Certain Underwriters at Lloyd’s London, 32 F.4th
1347, 1358–59 (11th Cir. 2022) (collecting cases). As we held in SA
Palm Beach, a case decided under Florida law, an insured must
allege a “tangible alteration of the property.” Id. at 1358. Alleging
the “loss of use based on intangible and incorporeal harm to the
property due to COVID-19 and the closure orders that were issued
by state and local authorities” is not enough. Id.2Because the policy provides no coverage, we need not consider whether the
virus exclusion also would have barred Henry’s claims.
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8 Opinion of the Court 20-14156
* * *
Henry’s Louisiana Grill insured against the “physical loss of
or damage to” its property. But that does not extend to the
intangible harm caused by Covid-19 or by a declaration of public
emergency issued in its wake.
AFFIRMED.