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[PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 21-11974
____________________
DUKES CLOTHING, LLC,
Plaintiff-Appellant,
versus
THE CINCINNATI INSURANCE COMPANY,
Defendant-Appellee.
____________________
Appeal from the United States District Court
for the Northern District of Alabama
D.C. Docket No. 7:20-cv-00860-GMB
____________________
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2 Opinion of the Court 21-11974
Before NEWSOM, TJOFLAT, and HULL, Circuit Judges.
HULL, Circuit Judge:
This case presents an increasingly common question of
insurance coverage and its interaction with the COVID-19
pandemic. The question here—arising under Alabama law—is
whether an insurance policy that provides coverage for loss of
business income caused by “accidental physical loss or accidental
physical damage” to the insured’s property covers losses and
expenses caused by COVID-19.
Alabama’s Supreme Court and intermediate appellate
courts have not (1) interpreted those coverage terms—physical loss
or damage; or (2) determined whether losses and expenses caused
by COVID-19 are covered under similar policies. However, our
Court recently examined insurance policies with nearly identical
terms and held those terms—physical loss or damage—plainly
require some “tangible alteration” or “actual change” to the
insured’s property and do not cover losses and expenses caused by
COVID-19. See SA Palm Beach, LLC v. Certain Underwriters at
Lloyd’s London,
32 F.4th 1347, 1358–59 (11th Cir. 2022) (applying
Florida law); Henry’s La. Grill v. Allied Ins. Co. of Am., —F.4th—,
No. 20-14156,
2022 WL 1815874, at *2–3 (11th Cir. June 3, 2022)
(applying Georgia law). In reaching this conclusion, our Court
observed that every federal and state appellate court to consider
the issue has held that the presence of COVID-19 causes a business
intangible harm, not physical loss or damage. See SA Palm Beach,
32 F.4th at 1358–59; Henry’s,
2022 WL 1815874, at *3.
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21-11974 Opinion of the Court 3
After review and with the benefit of oral argument, we
conclude that Alabama appellate courts would reach the same
result—which is that the policy here provides no coverage because
COVID-19 did not cause physical loss or damage to the insured’s
property. Thus we affirm the dismissal of Dukes’s complaint.
I. BACKGROUND
In response to the COVID-19 pandemic, governments
across the country imposed various occupancy limitations on non-
essential businesses to slow the spread of the virus. Beginning in
March 2020, Alabama’s Governor and State Health Officer issued a
series of executive orders restricting operations of non-essential
businesses, including retail stores.
Dukes Clothing, LLC (“Dukes”) operated two clothing
stores—one in Tuscaloosa, Alabama, and one in Mountain Brook,
Alabama. As a result of the state orders and a customer’s exposure
to COVID-19, Dukes was forced to close its doors. These closures
resulted in lost business income for Dukes.
Dukes’s insurer, The Cincinnati Insurance Company
(“Cincinnati”), had issued an all-risk commercial insurance policy
to Dukes, effective from September 10, 2018, to September 10,
2021. Dukes submitted a claim under its policy to recover its loss
of business income due to its store closures caused by COVID-19.
Cincinnati denied the claim on the basis that Dukes’s income loss
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was not caused by a direct physical loss or damage to the insured’s
property. We set forth the relevant coverage provisions. 1
A. Dukes’s Policy
The relevant form in Dukes’s policy is the “Business Income
(and Extra Expense) Coverage Form.”
On that form, the “Business Income” provision states that
Cincinnati “will pay for the actual loss of ‘Business Income’” Dukes
sustains “due to the necessary ‘suspension’” of its operations.
However, “[t]he ‘suspension’ must be caused by direct ‘loss’ to
property at ‘premises,’” and the coverage extends through “the
‘period of restoration’.” (emphases added).
The policy provides that “words and phrases that appear in
quotation marks have special meaning” defined in the policy. The
terms “loss,” “suspension,” and “period of restoration” are all in
quotation marks.
Importantly here, the policy defines “loss” as “accidental
physical loss or accidental physical damage.” (emphasis added).
“Suspension” means “[t]he slowdown or cessation” of business
activities. And the “[p]eriod of restoration . . . [b]egins at the time
of direct ‘loss’,” and “[e]nds on the earlier of: (1) [t]he date when
1 Dukes did not attach the policy to its complaint. But since Cincinnati at-
tached the policy to its motion to dismiss, we can consider it at this stage be-
cause the policy is “(1) central to the plaintiff’s claim and (2) undisputed.” Day
v. Taylor,
400 F.3d 1272, 1275–76 (11th Cir. 2005).
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21-11974 Opinion of the Court 5
the property at the ‘premises’ should be repaired, rebuilt, or
replaced with reasonable speed and similar quality; or (2) [t]he date
when business is resumed at a new permanent location.”
Accordingly, the “suspension” that triggers “Business
Income” coverage must be caused by direct “accidental physical
loss or accidental physical damage” to the insured’s property. And
the “period of restoration” begins at the time of the direct
“accidental physical loss or physical damage,” and it ends either
when the property is “repaired, rebuilt, or replaced,” or the
“business is resumed at a new permanent location.” Further, the
“Extra Expense” coverage is provided “only if . . . ‘Business
Income’ coverage applies.”
B. Dukes’s Lawsuit
After denial of its claim, Dukes filed this action against
Cincinnati, alleging breach of contract, bad faith, and negligence.
Dukes’s complaint alleged that COVID-19 is a “causative agent of
property damage.” Dukes asserted that it established business
interruption loss at both its locations caused by COVID-19
generally, civil authority orders, and a customer’s exposure to
COVID-19.
Cincinnati filed a motion to dismiss, which argued that
Dukes’s complaint failed to state a claim because it did not allege a
suspension caused by direct physical loss or damage. See Fed. R.
Civ. P. 12(b)(6). Specifically, Cincinnati contended that
(1) COVID-19 did not cause physical loss or damage because the
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virus could be removed by traditional cleaning; (2) the policy
required a tangible alteration of the property; and (3) the lack of a
virus exclusion in the policy was irrelevant because there was no
physical loss or damage to trigger coverage in the first place.
In response, Dukes argued that Cincinnati breached its
contract because all-risk policies, like the one here, “automatically
cover[] any loss not explicitly omitted.” And Dukes contended that
it plausibly alleged physical loss or damage because its complaint
presented an “exhaustive review of why the COVID-19 novel
coronavirus is considered to be a cause of physical loss or property
damage.” As to bad faith, Dukes argued that Cincinnati “made a
predetermined decision to deny the claim before it was made” and
did not investigate Dukes’s claim.
The magistrate judge granted Cincinnati’s motion to
dismiss. 2 Because no Alabama appellate court had addressed
whether COVID-19 constitutes a direct physical loss or damage to
property, the magistrate judge relied on dictionary definitions and
Alabama law’s tools of insurance contract construction. As to the
policy, the magistrate judge determined that (1) direct “physical
loss” or “physical damage” required an actual physical alteration to
the property; and (2) COVID-19 did not constitute direct physical
loss or damage to Dukes’s property. 3 The magistrate judge thus
2 The parties consented to having a magistrate judge conduct the proceedings.
3 Because there was no coverage, the magistrate judge (1) dismissed the bad
faith and negligence claims; and (2) declined to address the pollution
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concluded that Dukes had not alleged facts sufficient to establish
coverage under its policy.
II. STANDARD OF REVIEW
We review de novo a dismissal for failure to state a claim.
See Ellis v. Cartoon Network, Inc.,
803 F.3d 1251, 1255 (11th Cir.
2015). “[W]e take the factual allegations in the complaint as true
and construe them in the light most favorable to the plaintiff.”
Pielage v. McConnell,
516 F.3d 1282, 1284 (11th Cir. 2008). “To
survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief that is
plausible on its face.” Ashcroft v. Iqbal,
556 U.S. 662, 678,
129 S.
Ct. 1937, 1949 (2009) (quotation marks omitted). To have a facially
plausible claim, the complaint must “plead[] factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
Id. In other words,
the complaint must raise “more than a sheer possibility that a
defendant has acted unlawfully.”
Id.
We also review de novo a district court’s determination of
state law. See SA Palm Beach, 32 F.4th at 1356.
exclusion. Although Dukes at one point invoked the “Civil Authority”
coverage in its policy, Dukes does not raise that coverage here so we do not
address that provision.
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III. DISCUSSION
A. Alabama Law on Interpreting Insurance Policies
When examining insurance policies, Alabama courts
consider the language of the policy as a whole, not in isolation. See
State Farm Fire & Cas. Co. v. Slade,
747 So. 2d 293, 309 (Ala. 1999).
Whether an insurance policy is ambiguous is a question of law for
the courts. See Crook v. Allstate Indem. Co.,
314 So. 3d 1188, 1193
(Ala. 2020).
If a word or phrase is not defined in a policy, courts “should
construe the word or phrase according to the meaning a person of
ordinary intelligence would reasonably give it.”
Id. (quotation
marks omitted). The words and phrases are thus “given a rational
and practical construction.” Slade,
747 So. 2d at 309. If a word or
phrase is genuinely ambiguous, the policy “should be construed
liberally” in favor of the insured. Travelers Cas. & Sur. Co. v. Ala.
Gas Corp.,
117 So. 3d 695, 700 (Ala. 2012) (quotation marks
omitted).
“The terms of an insurance policy are ambiguous only if the
policy’s provisions are reasonably susceptible to two or more
constructions or there is reasonable doubt or confusion as to their
meaning.” Slade,
747 So. 2d at 308–09; see also B.D.B. v. State Farm
Mut. Auto. Ins. Co.,
814 So. 2d 877, 880 (Ala. Civ. App. 2001)
(noting that Alabama courts have “looked to dictionary
definitions”). Policy language is not rendered ambiguous just
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because parties disagree about the meaning of a policy provision.
See Travelers,
117 So. 3d at 699.
There are no Alabama appellate court decisions interpreting
the relevant terms here—physical loss or damage—or interpreting
these types of all-risk policies in the COVID-19 context. As such,
our duty is “to decide what the state courts would hold if faced
with” the question of whether lost business income resulting from
COVID-19 is covered by this all-risk insurance policy. Taylor v.
Williams,
528 F.3d 847, 850 (11th Cir. 2008) (quotation marks
omitted) (applying this duty to a question under Georgia law). To
decide how Alabama appellate courts would interpret physical loss
or damage, we first examine our Court’s decisions interpreting
nearly identical terms under Florida and Georgia law.
B. Eleventh Circuit Precedent
This Court interpreted a similar insurance policy in SA Palm
Beach. In that case, this Court consolidated four cases—all arising
under Florida law—to determine whether the insureds’ respective
all-risk insurance policies covered losses and expenses incurred as a
result of COVID-19. 32 F.4th at 1350.
Three of the policies at issue in SA Palm Beach had terms
nearly identical to the terms in Dukes’s policy. See id. at 1351–54
(reciting each of the three relevant policies). The three policies
covered “actual loss of Business Income” if the suspension in the
insureds’ business operations was caused by “direct physical loss of
or damage to property.” Id. (quotation marks omitted).
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In SA Palm Beach, this Court noted that “every federal and
state appellate court” to that point had found “no coverage for loss
of use based on intangible and incorporeal harm to the property
due to COVID-19 and the [state and local] closure orders.” Id. at
1358–59 (collecting cases from state and federal courts, including 9
federal circuit courts, applying law from 15 states). Finding no
indication that the Florida Supreme Court would reach a different
conclusion, this Court followed the “majority view” and held that
“physical loss” or “physical damage” requires some tangible
alteration to the insured’s property. 4 Id.
From there, our Court analyzed Florida caselaw regarding
what constitutes a tangible alteration to property and concluded
that “an item or structure that merely needs to be cleaned has not
suffered a ‘loss’ which is both ‘direct’ and ‘physical.’” Id. at 1361.
While COVID-19 “require[s] that the properties be cleaned to
eliminate particles of the virus,” this Court held that is not enough
to constitute a tangible alteration to the property and thus not
enough to establish coverage under the policy. Id.
Similarly, this Court concluded in Henry’s that the same
analysis applied to all-risk insurance policies interpreted under
Georgia law. See
2022 WL 1815874, at *2–3. Under the policy at
4 Our Court in SA Palm Beach did vacate in part the district court’s dismissal
on one claim that involved a policy provision not relevant to this appeal be-
cause that provision did not include the physical loss or damage language. See
SA Palm Beach, 32 F.4th at 1362–63.
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issue in Henry’s, Allied Insurance would cover lost business
income if the insured’s operations were suspended because of
“direct physical loss of or damage to” the insured’s property. Id. at
*1.
In Henry’s, our Court began with Georgia law and noted
that under Georgia law, “[b]eing physical meant that the loss or
damage had to make the property unsatisfactory for future use or
meant that the property would need repairs before it would be
usable again.” Id. at *2 (quotation marks omitted). Put differently,
“a ‘direct physical loss’ always involves a tangible change to
property.” Id. Since COVID-19 does not cause a “tangible
alteration of the property” such that the property could not be used
in the future or needed repairs to be used, lost business income
resulting from COVID-19 could not constitute a “physical loss of
or damage to” the property necessary for insurance coverage. Id.
at *3.
C. Alabama Law
Similarly, we conclude that under Alabama law “accidental
physical loss or accidental physical damage” in Dukes’s insurance
policy requires the insured to show tangible alteration to the
property in order to establish coverage.
As to our Circuit precedent, the only two differences
between the policy here and the three in SA Palm Beach or the one
in Henry’s are that (1) the phrase “accidental physical loss or
accidental physical damage” in Dukes’s policy is in a definition
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section for the word “loss,” whereas the other policies included the
entire phrase “physical loss of or damage to property” in each
relevant provision; and (2) the word “accidental” precedes
“physical loss” and “physical damage.” Nonetheless, all the
relevant policies require a suspension caused by physical loss or
damage for coverage to attach. We conclude that there is no
material or principled difference between the policies.
Further, Alabama’s tools of insurance contract construction
are consistent with the rules applied in our precedent. See SA Palm
Beach, 32 F.4th at 1356; Henry’s,
2022 WL 1815874, at *2. We
conclude that Dukes’s policy language here is not genuinely
ambiguous because it can be understood by assigning the phrases
at issue their ordinary meaning. As our Court noted in Henry’s,
the dictionary definition supports such a reading because “[t]o be
physical, the loss itself must be ‘of or relating to things perceived
through the senses as opposed to the mind’; it must be ‘tangible or
concrete.’” Henry’s,
2022 WL 1815874, at *2 (quoting New Oxford
American Dictionary 1321 (3d ed. 2010)).
The tangible alteration interpretation also harmonizes the
“accidental physical loss or accidental physical damage” phrase
with the policy as a whole. See Slade,
747 So. 2d at 309 (“[A] court
cannot consider the language in the policy in isolation, but must
consider the policy as a whole.”). The “Business Income”
provision, upon which Dukes relies on appeal, incorporates the
phrases “suspension” and “period of restoration.” The
“suspension” must be caused by “accidental physical loss or
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accidental physical damage” to the property. The “period of
restoration” either ends when the property should be “repaired,
rebuilt, or replaced,” or “when business is resumed at a new
permanent location.” That language—repaired, rebuilt, and
replaced—also “confirms that a ‘physical loss of’ property must
involve tangible change to the property.” Henry’s,
2022 WL
1815874, at *3.
We further conclude that if a property or surface can be
cleaned and quickly restored to its previous condition, then the
property has not suffered direct “accidental physical loss or
accidental physical damage” such that it has been tangibly altered.
See id.; SA Palm Beach, 32 F.4th at 1361. A temporary loss of use,
without more, cannot satisfy the physical loss or damage
requirement in an insurance policy like the one here.
Pursuant to that ordinary meaning, Dukes’s claim that its all-
risk insurance policy covers its losses and expenses incurred as a
result of COVID-19 must fail. Put simply, Dukes did not state a
claim that COVID-19 caused physical damage to its property
because (1) COVID-19 does not physically alter the property it rests
on; and (2) COVID-19 particles can be removed from a surface by
standard cleaning measures. Thus, the closures stemming from
the pandemic—whether by government order or by customer
exposure—do not constitute physical loss or damage under
Dukes’s policy.
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IV. CONCLUSION
We affirm the magistrate judge’s dismissal of Dukes’s
complaint for failure to state a claim under Federal Rule of Civil
Procedure 12(b)(6).
AFFIRMED.
