Insurance Coverage: In this case of first impression, the Supreme Court holds that policies covering “direct physical loss of or physical damage to” property do not cover business income losses during the pandemic

The plaintiffs, Connecticut Dermatology Group, PC, Live Every Day, LLC, and Ear Specialty Group of Connecticut PC, brought suit against the defendants, their insurance providers, under their policies containing provisions requiring insurance companies to “pay for direct physical loss of or physical damage to” covered property caused by a covered cause of loss. During the COVID-19 pandemic, the plaintiffs suspended their businesses and subsequently lost business income and incurred other expenses, which they claim to be economic loss covered under their policies. The defendants denied the claims and filed a motion for summary judgment on the grounds that the claimed losses were subject to a virus exclusion in the policies. The defendant’s motion was granted and the plaintiffs appealed. The Supreme Court affirms the trial court’s decision on the alternative ground that there is no genuine issue of material fact as to whether the policies did not cover the plaintiffs’ claims because the plaintiffs did not suffer any direct physical loss of covered property. The Court then evaluates whether the policy provision covering “direct physical loss of … [p]roperty” covers the losses caused by the suspension of their business operation during the pandemic. The policy defined “covered property” to include buildings described in the declarations; permanent fixtures, machinery and equipment; building glass, personal property owned by the insured that is used to maintain or service the building or structures on the premises; and personal property such as tools and equipment that the insured uses in its business. The Connecticut Supreme Court cites a recent decision from the United States Court of Appeals for the Second Circuit which found that a policy covering “‘accidental physical loss or accidental physical damage’” to property did not cover a loss incurred as a result of the suspension of business operations during the pandemic because the loss was not physical, and the virus did not tangibly alter the property. The Supreme Court concludes that the plaintiffs’ interpretation that the coverage provision for “direct physical loss of … [p]roperty” applies to their claims – even though there has been no physical, tangible alteration of their properties, no persistent, physical contamination of the properties rendering them uninhabitable, and no imminent threat of physical danger to or destruction of the properties rendering them uninhabitable – is not reasonable and there is no genuine issue of material fact. Connecticut Dermatology Grp. PC v. Twin City Fire Ins. Co., 346 Conn. 33, 288 A.3d 187 (2023).