IRT can’t claim coverage for COVID-related losses, appeals court affirms

Despite the “dire” financial downturn caused by COVID-related business closures, the Indiana Repertory Theatre can’t claim loss-of-use coverage under its insurance policy because the theater was not physically damaged, the Court of Appeals of Indiana has affirmed.

Judge Melissa May wrote for the unanimous appellate panel that upheld summary judgment for the IRT’s insurer on Tuesday.

The decision comes about a week after a federal court found that Patachou restaurants in Indianapolis and Carmel would not be able to recoup their financial losses from the COVID-19 shutdown in the spring of because the policy they held only reimbursed for damage to the actual brick and mortar structures.

Located in downtown Indianapolis, the IRT announced on March 17, 2020, that it was canceling its 2019-2020 season due to the emerging novel coronavirus. Three days later, the theater filed a claim with Cincinnati Casualty Company asserting “loss of business income and extra expense as a result of the COVID-19 pandemic.”

Cincinnati Casualty responded by asking for additional information regarding direct physical loss or damage, but the IRT did not respond. The insurer then denied the claim, writing in a denial letter that “the fact of the pandemic, without more, is not direct physical loss or damage to property at the premises.”

The IRT responded with a complaint against Cincinnati Casualty seeking declaratory judgment that the scope of its insurance policy included COVID-related losses. The parties filed cross-motions for summary judgment, and the Marion Superior Court ultimately entered judgment in favor of the insurer, finding, “the Policy requires physical alteration to the premises to trigger the business income coverage.”

But on appeal, the theater argued the language of its insurance policy—specifically, the language addressing “physical loss or physical damage”—was ambiguous. According to the IRT, the language governing “accidental physical loss or accidental physical damage” included the alleged presence of COVID on its premises.

But the COA rejected those claims, pointing to a New York case involving the Roundabout Theatre Co., decided in 2002.

“Like here, Roundabout’s building did not suffer any damage or alteration,” May wrote for the appellate court. “Rather, the building was unusable for its intended purpose because of an outside factor. The COVID-19 pandemic in the instant case is like the construction accident in Roundabout.”

Likewise, the 8^th Circuit Court of Appeals in Oral Surgeons, P.C. v. Cincinnati Ins. Co. in 2021 held that “Oral Surgeons’ suspension of non-emergency procedures due to COVID-19 were not covered as ‘accidental physical loss or accidental physical damage’ in its insurance contract with Cincinnati Casualty.”

“Finally,” May wrote, “IRT’s interpretation of ‘physical loss or physical damage’ is unreasonable because it parses and dichotomizes the Policy language.”

The court concluded by noting its sympathy for the IRT, writing that millions of small business owners “suffered losses due to the COVID-19 pandemic, and the ensuing worldwide financial crisis is dire.”

“At the same time, we cannot ignore well-established principles of insurance contract interpretation and add provisions in the Policy that do not exist,” May concluded. “IRT did not suffer physical loss or physical damage under the language of the Policy because the premises covered, that is the theater building located at 140 W. Washington Street in Indianapolis, was not destroyed or altered in a physical way that would require restoration or relocation.”