RELYING ON TERRY BLACK’S BARBECUE FEDERAL DISTRICT COURT DISMISSES INSURED’S COVID-19 BUSINESS INTERRUPTION COVERAGE
A federal district court in Dallas recently granted an insurer’s motion to dismiss an insured’s lawsuit alleging breach of contract and extra-contractual claims against the insurer after applying Fifth Circuit’s ruling in Terry Black’s Barbecue, a similar COVID-19-related coverage case. Lamacar, Inc. v. The Cincinnati Cas. Co., No. 3:21-CV-1396-S, 2022 WL 227162 (N.D. Tex.—Dallas Jan. 26, 2022), involved a company that sells gift shop inventory to customers throughout the U.S., who filed a claim with its commercial property insurer seeking coverage under the policy’s Business Income Loss from Dependent Properties Coverage. The policy also included coverage for the insured’s loss of business income resulting from loss or damage to the property of its customers.
In April 2021, the insurer denied the claim, informing the insured that it had failed to provide evidence of direct physical loss or damage to dependent properties from a Covered Cause of Loss, as the policy required. The insured subsequently filed suit, alleging breach of contract and extra-contractual claims for violations of the Texas Insurance Code and breach of the duty of good faith and fair dealing. The insured alleged that the virus that causes COVID-19 physically damages property because, as the scientific studies it cited showed, the virus could “physically bond with, alter and contaminate” other materials, including the insured and its customers’ property (i.e., the inventory sold to the gift shops, most of which were in hospitals). The insured also cited the lockdown orders from a local county judge stating the virus caused “property loss or damage due to its ability to attach to surfaces for prolonged periods of time.” As result of the contaminated property, which caused the insured’s customers to stop sales or go out of business, the insured’s business fell by nearly 70%. In response, the insurer filed a motion to dismiss, restating that the insured had not provided evidence of a direct physical loss or damage to dependent properties from a Covered Cause of Loss.
The Court agreed with the insurer and emphasized the Fifth Circuit’s ruling in Terry Black’s Barbecue—in relevant part, that “physical loss of property . . . requires a tangible alteration or deprivation of property.” Like the restaurant owner in Terry Black’s Barbecue, the insured’s customers had not experienced any loss of property that triggered coverage because “nothing physical ha[d] happened to their property.” That is, coverage required a “loss of property, not the loss of use of property,” and the insured was therefore required to allege in its complaint that it suffered a direct physical loss or damage to its property or the property of its customers. The insured’s complaint did not so allege, and, after citing numerous cases reaching the same conclusion, the Court therefore granted the insurer’s motion to dismiss as to the breach of contract claim. Because the insured’s breach of contract claim was dismissed due to a lack of coverage, the Court also dismissed the insured’s extra-contractual claims.