In March 2020, Governor Reynolds issued a proclamation closing all bars and restaurants from dine-in or in-person services in response to the COVID-19 pandemic. In compliance with the proclamation, both Jesse’s Embers (Des Moines bar and restaurant) and Wakonda Club (Des Moines country club) closed down. Both businesses had commercial property insurance with similar language requiring a “direct physical loss of or damage to property” for coverage to be triggered.
In separate actions, Jesse’s Embers and Wakonda Club asserted claims of breach of contract and bad faith against each’s respective insurer. In both cases, the insurer’s motion for summary judgment was granted by the district court.
In companion rulings, the Iowa Supreme Court affirmed both district courts’ rulings, holding that the language “direct physical loss of or damage to property” in the context of a commercial property insurance policy requires a physical aspect to the loss of the property before coverage is triggered. While a physical contamination of property, such as the release of asbestos or use of unapproved pesticides, may satisfy the direct physical loss requirement, the mere loss of use of business property, without more, does not. Here, there was no contamination of Jesse’s Embers or Wakonda Club, either by the existence of COVID-19 on the property, or by the presence of any infected employees or patrons. Therefore, there was no direct physical loss or damage, and coverage was not triggered.
Wakonda Club v. Selective Insurance Company of America, No. 21-0374 (Iowa April 22, 2022)
Jesse’s Embers, LLC d/b/a Jesse’s Embers v. Western Agricultural Insurance Company d/b/a Farm Bureau Financial Services, No. 21-0623 (Iowa April 22, 2022).