Brown Jug, Inc. v. Cincinnati Ins. Co.

Brown Jug, Inc. v. Cincinnati Ins. Co.

Opinion

 [*400]   [***2]  COLE, Circuit Judge. Businesses across the United States have turned to a variety of sources to recoup economic losses attributable to the COVID-19 pandemic. Plaintiffs in this consolidated appeal are businesses that operate Michigan-based restaurants and entertainment venues that turned to their commercial property insurance policies, held by Cincinnati Insurance Company, for relief. These policies contained three provisions under which Cincinnati Insurance would compensate a policy holder if—and only if—the policy holder suffered direct physical loss or damage to its covered property, or if loss to a non-policy holder's property [**2]  prevented access to a policy holder's property. Cincinnati Insurance denied plaintiffs' claims for relief because, in its view, neither the presence of the COVID-19 virus nor shutdown orders issued by the Michigan governor constituted physical loss or damage.

Plaintiffs sought a declaratory judgment that these pandemic-related losses were compensable under the policy. Cincinnati Insurance moved to dismiss the complaints. The district court found that, under Michigan law, "direct physical loss" to property covers only tangible harm or damage to property, rather than mere loss of use. Therefore, the plaintiffs had failed to state a claim. Because we believe that the Michigan Supreme Court would agree with this interpretation of the law, we affirm the dismissal of plaintiffs' complaints.

I. BACKGROUND

A. Factual Background

The Brown Jug, Inc.; Chelsea Ventures, LLC; Dino Drop, Inc.; Buccaroo, LLC; DM Bach Enterprises, LLC; Bucaroo Too, LLC; and 45 Degree Hospitality, Inc. (collectively "plaintiffs") are Michigan-based businesses. They operate restaurants that were covered by identical or substantially similar Cincinnati Insurance Company commercial property insurance policies early in the [**3]  COVID-19 pandemic. Like many other restaurants, plaintiffs' operations have been economically affected by the COVID-19 pandemic. Michigan's stay-at-home orders curtailed access to plaintiffs' businesses and restricted in-person activities at their facilities.  [***3]  Because of COVID-19 outbreaks in Michigan generally, plaintiffs' businesses have been unable to return to normal operations. Two restaurants, one belonging to Brown Jug and one belonging to Dino Drop, were even alleged sources of COVID-19 outbreaks.

To offset these losses, plaintiffs submitted claims for reimbursement to Cincinnati Insurance. The claims hinged on three policy provisions.¹ First, the "Business Income" provision, which provides:

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