Can the presence of COVID-19 on a property trigger insurance coverage for “direct physical loss or damage” under coverage provisions contained within a Master Policy of Insurance for Business Interruption? Not under Missouri law, according to the Western District Court of Appeals in BBX Capital Corporation v. Scottsdale Insurance Company (WD 86632). The decision adds clarity—and finality—to a now-settled question: losses resulting from business interruption and caused by physical loss, damage or destruction under “all-risk” policies requires more than contamination or government shutdowns. The loss requires a tangible and physical alteration to property for coverage.
The case involved a nationwide business operator—vacation resorts, retail stores, and timeshare properties—that sought insurance coverage for business losses allegedly caused by the presence of COVID-19 and resulting government-ordered closures. The insured claimed that its properties became unfit for use due to virus particles lingering on surfaces and in the air, arguing that presence of the virus constituted “direct physical loss or damage” under its all-risk insurance policies.
The trial court granted judgment on the pleadings in favor of the insurers finding that insured’s claims based upon direct physical loss or damage failed as a matter of law. The Western District affirmed.
The focus of the Western District’s analysis was the phrase “direct physical loss of or damage to” property. Because this phrase was not defined in the policy, the Court interpreted the words according to their plain and ordinary meaning. Relying on dictionary definitions and applying a definition consistent with several federal cases applying Missouri law, the Court concluded that the phrase “direct physical loss of or damage” required a tangible, perceptible impact on the insured’s property —one that physically alters the property.
The insured argued that the virus’s presence made its properties uninhabitable and unsafe, thereby triggering coverage. But the Court found that such limitations on use—even when caused by government mandates or public health concerns—did not satisfy the requirement of physical alteration or tangible impact. Insured’s petition contained no allegations that the virus damaged surfaces or structural elements of any property, or that any part of the properties required repair, rebuilding, or replacement as a result of the virus.
The insured cited some Missouri cases and federal court decisions addressing the presence of viral particles on property in an attempt to establish an ambiguity in the interpretation of the pertinent policy language, and thereby benefit from the application of Missouri law that an ambiguity found in an insurance policy will be resolved in favor of the insured period. The Court rejected the insured’s argument that the policy language was ambiguous citing the “unconvincing nature of the cases” cited by insured. The Western District found no divergence in Missouri law with regard to it’s analysis and found nothing ambiguous about the term “direct physical loss of or damage to” property as used in the policies. Quoting precedent from the Missouri Supreme Court, the Court explained that it would not “distort” clear policy language to create ambiguity where none exists.
Ultimately, the Western District joined the majority of courts nationwide that have concluded the presence of COVID-19 does not constitute “direct physical loss or damage” as required to trigger business interruption coverage under similarly worded policies.
This case reinforces the importance of precise policy language and underscores the narrow interpretation Missouri courts apply to “physical loss” provisions—particularly when weighed against claims arising from intangible or environmental factors like viral contamination.
