Wakonda Club v. Selective Ins. Co. of Am.

• Decision Date: 22 April 2022
• Docket Number: 21-0374
• Citation: 973 N.W.2d 545
• Parties: WAKONDA CLUB, Appellant, v. SELECTIVE INSURANCE COMPANY OF AMERICA, Appellee.
• Court: Iowa Supreme Court

973 N.W.2d 545

WAKONDA CLUB, Appellant,

v.SELECTIVE INSURANCE COMPANY OF AMERICA, Appellee.

No. 21-0374

Supreme Court of Iowa.

Submitted February 21, 2022

Filed April 22, 2022

James W. Carney (argued), Nicholas J. Mauro, and Jasper P. Verhofste of Carney & Appleby, P.L.C., Des Moines, for appellant.

Douglas A. Haag (argued) of Patterson Law Firm, L.L.P., Des Moines, for appellee.

Oxley, J., delivered the opinion of the court, in which all justices joined.

OXLEY, Justice.

Wakonda Club operates a private golf and country club in Des Moines. After Governor Kim Reynolds issued a proclamation restricting in-person services at bars and restaurants in response to the COVID-19 pandemic in 2020, Wakonda Club made a claim under its all-risk commercial property insurance policy for income it lost during the time it temporarily closed its facilities in compliance with the Governor's proclamation. Wakonda Club denied having any coronavirus contamination on its property or among its employees or members, asserting that its lost profits were caused solely by the loss of its ability to fully use its premises. The claim was denied, Wakonda Club sued, and the district court granted summary judgment in favor of the insurer. Wakonda Club now appeals.

This case is one of hundreds around the country addressing business interruption insurance coverage for businesses impacted by similar government proclamations and orders stemming from the COVID-19 pandemic. This case presents our first opportunity to address whether the mere loss of use of business property constitutes "direct physical loss of or damage to property" to trigger coverage under the business interruption endorsement to an all-risk commercial property insurance policy like the one involved here. For the reasons provided below, we conclude the language "direct physical loss of" property requires a physical aspect to the loss of the property before coverage is triggered. We reject Wakonda Club's argument that loss of use, without something more, is enough. We therefore affirm the district court's order granting summary judgment in favor of the insurer.

I.

On March 17, 2020, Governor Reynolds issued a proclamation closing all bars and restaurants from dine-in or in-person service in response to the COVID-19 pandemic. Section 3(A) of the proclamation provides:

Restaurants and Bars: All Restaurants and Bars are hereby closed to the general public except that to the extent permitted by applicable law, and in accordance with any recommendations of the Iowa Department of Public Health, food and beverages may be sold if such food or beverages are promptly taken from the premises, such as on a carry-out or drive-through basis, or if the food or beverage is delivered to customers off the premises.

In compliance with the proclamation, Wakonda Club completely closed down its business from March 17 through March 28, when it re-opened enough to allow carryout food sales. It resumed some in-person operations on May 22, with restrictions for both its golf course and restaurant operations.

Wakonda Club submitted a claim to its insurer, Selective Insurance Company of America (Selective), for losses it suffered as a result of the Governor's proclamation. Selective provided Commercial Insurance Coverage to Wakonda Club, including Commercial Property Coverage. The Commercial Property Coverage Part was an all-risk policy, extending coverage to all losses other than those that were excluded. The Commercial Property Coverage Part included a Business Income (and Extra Expense) Coverage Form endorsement. As relevant here, the Business Income endorsement provides coverage as follows:

We will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of your "operations" during the "period of restoration." The "suspension" must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit Of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss.

"Suspension" is specifically defined to mean "[t]he slowdown or cessation of your business activities." "Period of restoration" is also a defined term, meaning the period that:

a. Begins:

(1) 72 hours after the time of direct physical loss or damage for Business Income Coverage; or

(2) Immediately after the time of direct physical loss or damage for Extra Expense Coverage;

caused by or resulting from any Covered Cause of Loss at the described premises; and

b. Ends on the earlier of:

(1) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or

(2) The date when business is resumed at a new permanent location.

"Covered Causes of Loss means direct physical loss unless the loss is excluded or limited in this policy." The parties agree that Wakonda Club's clubhouse and golf course are included in the premises described in the Declarations and include a Business Income Limit of Insurance.

The Business Income Coverage Form also provided coverage for "Extra Expenses." Extra Expense was defined in the policy to "mean[ ] necessary expenses you incur during the ‘period of restoration’ that you would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss." The policy specifies:

We will pay Extra Expense ... to:

(1) Avoid or minimize the ‘suspension’ of business and to continue operations at the described premises or at replacement premises or temporary locations, including relocation expenses and costs to equip and operate the replacement location or temporary location.

(2) Minimize the ‘suspension’ of business if you cannot continue ‘operations’.

The final provision of the Commercial Property Coverage Part relevant to this appeal is an endorsement titled "Exclusion of Loss Due to Virus or Bacteria," which provided: "We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease."

Selective denied Wakonda Club's claim, responding that the policy did not afford coverage because there was no direct physical loss of or damage to Wakonda Club's property, and even if there was direct physical loss of or damage to Wakonda Club's property, the claim would be excluded under the virus exclusion.

Wakonda Club sued Selective, asserting claims for breach of contract and bad-faith denial of insurance coverage. Wakonda Club claimed that the policy provides coverage for income losses stemming from Governor Reynolds's proclamation. In its petition, Wakonda Club alleged that to its knowledge, no coronavirus was present on its premises or infected any of its employees or members at the club at any time prior or subsequent to the Governor's proclamation. Selective moved for summary judgment on the basis that the terms of the policy did not provide coverage. The district court granted Selective's motion, holding the policy does not cover Wakonda Club's losses because Wakonda Club did not claim any "injury to or destruction to realty or other loss physical in nature" and the policy's virus exclusion—which excludes payment for "loss or damage caused by or resulting from any virus"—forecloses coverage. Wakonda Club appealed, and we retained the appeal.

II.

Wakonda Club raises three issues on appeal: (1) that the policy's "direct physical loss of or damage to property" language in the Business Income and Extra Expense provisions covers its economic losses, (2) the policy's virus exclusion does not apply to its claim because Wakonda Club's losses stemmed from Governor Reynolds's proclamation, not the COVID-19 virus, and (3) it reasonably expected its policy to provide coverage for its business interruption losses. We conclude Selective was entitled to summary judgment because there was no "direct physical loss of" Wakonda Club's property, so Wakonda Club's losses are not covered under the policy. Without coverage, there is no need for us to address whether the virus exclusion would have excluded coverage. Our holding is premised on our pre-COVID-19 insurance law and is consistent with the vast majority of other courts around the country construing similar policy language involving business interruption coverage during the COVID-19 pandemic.

A.

"We review a district court's summary judgment ruling that interprets an insurance policy for correction of errors at law." Amish Connection, Inc. v. State Farm Fire & Cas. Co. , 861 N.W.2d 230, 235 (Iowa 2015). Summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Iowa R. Civ. P. 1.981(3).

We follow well-established rules when determining the meaning of insurance policy provisions. Greenfield v. Cincinnati Ins. , 737 N.W.2d 112, 118–19 (Iowa 2007). We construe unambiguous insurance contracts as written. Kimball Bros. v. Palatine Ins. Co., Ltd., of London, England , 197 Iowa 598, 195 N.W. 987, 988 (1923). If a policy does not define a term, we must give the words their ordinary meaning, see Boelman v. Grinnell Mut. Reins. , 826 N.W.2d 494, 501 (Iowa 2013), which is considered from the "viewpoint of an ordinary person, not a specialist or expert," Grinnell Mut. Reins. v. Jungling , 654 N.W.2d 530, 536 (Iowa 2002). We interpret ambiguous policy provisions in favor of the insured, so we first determine if the relevant policy provisions are ambiguous. A.Y. McDonald Indus., Inc. v. Ins. Co. of N. Am. , 475 N.W.2d 607, 618–19 (Iowa 1991) (en banc). Ambiguity exists only when the language of the insurance policy is capable of more than one reasonable interpretation. Farm Bureau Life Ins. v. Holmes Murphy &...