Two recent opinions addressed the trigger of coverage language requiring a “direct physical loss.” In Mama Jo’s Inc., d.b.a Berries v. Sparta Insurance Company, the Eleventh Circuit Court of Appeals affirmed summary judgment in favor of the insurer on the grounds that the insured failed to show any “direct physical loss” in support of its claims for cleaning costs and business interruption due to lower-than-expected sales. Specifically, the insured submitted a claim for construction-related debris and dust that allegedly damaged its building. The district court held that property that needs to be cleaned—but is not damaged—has not suffered a “direct physical loss” required to trigger coverage. The insured’s business loss was not covered because the insured had not established that the suspension of operations resulted from a “direct physical loss” either. Notably, the district court determined that “direct physical loss” requires tangible damage to property. The Eleventh Circuit affirmed and reiterated that “direct physical loss” requires that an item or structure actually suffer a “loss” that is both “direct” and “physical”—mere cleaning or suspension of business operations absent a physical loss is insufficient.
Similarly, in Malaube, LLC v. Greenwich Insurance Company, the magistrate recommended granting Greenwich’s Motion to Dismiss on the same grounds. The insured sought recovery for loss of business income due to governmental orders requiring closures because of COVID-19. In determining that the insured failed to state a claim for relief, the court reasoned that “direct physical loss” requires actual damage—namely, something tangible or physical. The court then reiterated the Eleventh Circuit’s reasoning in Mama Jo’s Inc. by finding that there is no recovery under a policy requiring a “direct physical loss” for pure economic losses that bear no connection to any physical loss or damage.
These two recent cases by the Eleventh Circuit and Southern District of Florida confirm the current trend of Florida courts interpreting the “direct physical loss” requirement to be tangible physical damage in order to recover. This growing interpretation of the trigger language places insurers in a favorable position to defend against COVID-19 business interruption claims as the insureds must establish that tangible physical damage occurs for coverage to exist.