How 11th Circ. Ruling Dominated 2021 COVID Insurance Cases

By Hugh Lumpkin and Garrett Nemeroff


December 9, 2021, 3:52 PM EST

Law360 (December 9, 2021, 3:52 PM EST) —

Hugh Lumpkin

Garrett Nemeroff

Despite being a case about construction dust and debris, the U.S. Court of Appeals for the Eleventh Circuit‘s opinion in Mama Jo’s Inc. v. Sparta Insurance Co.[1] had a pervasive and unwarranted effect this year on coverage for business interruption losses stemming from the COVID-19 pandemic.

Federal courts across the country have extended Mama Jo’s to the COVID-19 context largely without question and continue to cite Mama Jo’s as support for the dismissal of lawsuits brought to recover losses caused by COVID-19.

Mama Jo’s has been cited over a hundred times since it was issued in August 2020, including 88 times this year alone, mostly in cases dismissing policyholders’ claims — at the motion to dismiss stage — based on the court’s statement of law that an “item or structure that merely needs to be cleaned” has not suffered “loss of or damage to” the insured property.

As background, Mama Jo’s involved a Miami restaurant that was insured under an all-risk[2] commercial property policy that included coverage for business income losses, which covers losses caused by a suspension of the insured’s operations caused by “direct physical loss of or damage to” the property.

In that particular case, Mama Jo’s sought coverage for losses resulting from debris and dust caused by nearby construction work that migrated into the restaurant.[3]

For instance, Mama Jo’s claimed that the dust and debris damaged the building and required cleaning using the restaurant’s “normal cleaning methods” like using “rags, towels, and blowers,” as well as painting, to bring the property back to its preloss condition, and later added a claim for replacement of the awning and retractable roof systems, HVAC repairs, and replacement of the restaurant’s audio and lighting systems.[4]

Mama Jo’s also sought coverage for business income losses related to the roadwork, arguing that customer traffic decreased during the period of construction and caused lower-than-expected revenue.[5] The insurer denied the claim, and Mama Jo’s then filed suit in the U.S. District Court for the Southern District of Florida to resolve the coverage dispute.

After discovery, including expert discovery, the court granted the insurer’s Daubert motions and motion for summary judgment, finding that, without expert testimony, the restaurant could not show that the construction dust and debris caused any damage to the awnings, roof, HVAC systems, railings, or audio and lighting systems.[6]

The court also found that the “claim for cleaning” was not covered, reasoning that property that merely has to be cleaned has not sustained a “direct physical loss.”[7] In turn, the district court concluded that the business income losses were not covered, because any suspension in operations did not result from “direct physical loss.”[8]

On appeal, the Eleventh Circuit affirmed. Citing two intermediate Florida appellate court decisions, the court concluded that “loss” means the “diminution of value of something,” and that the words “direct” and “physical” modify the word “loss” and “impose the requirement that the damage be actual.”[9]

Characterizing the restaurant’s claim as “the cleaning claim” — even though the testimony showed that the debris required cleaning and painting — the court then found that, based on the testimony presented, the restaurant failed to show a “direct physical loss.”[10]

In particular, the court reasoned that summary judgment was correctly granted because, “under Florida law, an item or structure that merely needs to be cleaned has not suffered a ‘loss’ which is both ‘direct’ and ‘physical.'”[11] In turn, the court affirmed summary judgment as to Mama Jo’s business income loss since the suspension of operations must be caused by “direct physical loss of or damage to property.”[12]

And as to the “newly claimed damages” — i.e., the damaged awnings, roof, railings, and other property — the Eleventh Circuit found that, without the excluded expert testimony as to the cause of the damage, the restaurant could not prove such damage.[13] The court did not discuss whether the result would have been the same had the policyholder’s experts not been excluded.

To state the obvious, Mama Jo’s was about construction dust, not coronavirus or the larger global COVID-19 pandemic. The restaurant also never closed; it remained open throughout, albeit in a noisy and dusty fashion.

What’s more, Mama Jo’s hinged — at least in part — on specific testimony in that particular case indicating that to remedy the dust and debris, the restaurant simply “performed daily cleaning” and used “normal cleaning methods, employing dust pans, hoses, rags, towels, and blowers.”[14]

Perhaps more fundamentally, both the Eleventh Circuit and the federal district court in Mama Jo’s failed to meaningfully analyze applicable state law — here, Florida. Neither in the briefing nor argument did the court consider the only on-point commercial claim, Azalea Ltd. v. American States Insurance Co.[15] — a 1995 Florida Court of Appeal case with analogous facts and like policy language.

Azalea specifically cited with approval case law eschewing a physical alteration requirement in finding coverage under Florida law. Instead, the district court’s decision in Mama Jo’s relied on an unpublished decision from the U.S. Court of Appeals for the Sixth Circuit applying Michigan law,[16] and cases applying California law, Georgia law and, alternatively, New Jersey law.[17]

And while the Eleventh Circuit paid lip service to Florida law governing policy interpretation and quoted a Florida appellate court decision for its definition of “physical loss,” the court ignored well-established Florida principles of policy interpretation, Florida Supreme Court precedent and other Florida decisions finding that closures required by the presence of dangerous substances or chemicals satisfy the all-risk policy’s coverage requirements, including Azalea.[18]

Undeterred by the frailties in the Eleventh Circuit’s analysis and the lack of consanguinity between dust and a deadly virus, federal courts quickly extended Mama Jo’s and its “capable of cleaning” rule to the COVID-19 context.

For instance, just over a week after the Mama Jo’s opinion was issued, a magistrate judge in the U.S. District Court for the Southern District of Florida issued a report and recommendation in Malaube LLC v. Greenwich Insurance Co., citing Mama Jo’s to dismiss the insured’s COVID-19 business interruption claim for failure to state a claim.[19]

According to Malaube, the plaintiff in Mama Jo’s “at least alleged that there was a physical intrusion (i.e. dust and debris) into his restaurant,” whereas the plaintiff in Malaube merely claimed that two Florida emergency orders closed his indoor dining.[20]

In other words, Mama Jo’s was cited as support for the finding that the insured failed to state a claim where the policyholder did not allege that the virus was present on the property, because, according to the report and recommendation, Florida’s emergency orders themselves did not “arise to actual damage” — language absent from the all-risk policy at issue — and merely caused “economic losses – not anything tangible, actual, or physical.”[21]

Numerous courts within the Eleventh Circuit then followed suit in what quickly became a self-fulfilling line of cases all relying on each other and thus, at least in part, on Mama Jo’s itself.

For example, in Nahmad v. Hartford Casualty Insurance Co., decided in November 2020, the court cited Mama Jo’s and Malaube in support of its order dismissing a dental practice’s complaint because it could not allege “physical harm” — not “loss” — caused by the COVID-19 pandemic and the corresponding response by civil authorities to stop the spread of the outbreak.[22]

Following that, another district court then cited Mama Jo’s, Malaube and Nahmad’s “physical harm” language and found that the policyholder’s complaint failed to allege “physical harm,” and dismissed the complaint for failure to state a claim despite the restaurants’ allegations that they suffered direct physical losses of or damage to their properties due to the suspension of their operations from the global COVID-19 pandemic, including “diminished value, lost business income, a reduction in right of full ownership, and forced physical alterations during a period of restoration.”[23]

Perhaps the most egregious example came in February 2021.

In Town Kitchen LLC v. Certain Underwriters at Lloyd’s, the court considered a restaurant’s allegation that COVID-19 rendered the property unsuitable for its intended purpose due to the high risk of transmission of physical virus particles inside the premises, which the court characterized as a “loss of use” theory, and dismissed the claim based on Mama Jo’s, citing the district court’s opinion that “direct physical loss contemplates an actual change in insured property” whereas, per the court, “coronavirus particles damage lungs … not buildings.”[24]

The court also rejected what it called the “contamination theory,” finding Mama Jo’s to “control” the issue and declaring that while “the deadly coronavirus is surely an order of magnitude more dangerous than construction debris … they are both eliminated in the same way — with Lysol and a rag,” adding that “it is widely accepted that life can go on with hand sanitizer and disinfecting wipes.”[25]

Aside from the substantive legal concerns underpinning Mama Jo’s and its progeny, these cases raise broader concerns about federalism and a federal court’s duty to interpret and apply state law in diversity cases, rather than the court’s own general notions of correctness.

As some policyholder advocates have pointed out, Mama Jo’s and its progeny harken back to the federal general common law famously renounced by the U.S. Supreme Court in 1938 in Erie Railroad Co. v. Tompkins.[26]

As the Supreme Court has made clear, federal courts are not “free to ‘express [their] own opinion’ upon ‘the principles established in the general commercial law,” and “[f]ederal courts, unlike state courts, are not general common-law courts and do not possess a general power to develop and apply their own rules of decision.”[27]

Nonetheless, this trend continued throughout 2021 as courts across the country began citing Mama Jo’s and its progeny to dismiss COVID-19 claims as a matter of law at the outset of the case without any opportunity for the policyholders to present actual evidence of the COVID-related loss of or damage to their properties.

On Jan. 5, for example, the U.S. District Court for the Northern District of Georgia cited Mama Jo’s in K D Unlimited Inc. v. Owners Insurance Co. and dismissed a policyholder’s complaint on grounds that the presence of COVID-19 does not constitute “direct physical loss or damage to” the property because, according to the court, “[r]outine cleaning performed with greater frequency and care eliminates the virus on surfaces.”[28]

On March 10, the U.S. District Court for the Eastern District of Virginia cited Mama Jo’s and its progeny in Skillets LLC v. Colony Insurance Co., describing the “core holding” of Mama Jo’s as “alterations removable by cleaning do not constitute direct physical loss,” and dismissed the complaint for failure to state a claim despite allegations that COVID-19 was “no doubt present at Skillets and infested property surfaces.”[29]

And on June 28, the U.S. District Court for the Northern District of Oklahoma cited Malaube and another federal district court case, which itself relied on Mama Jo’s, for the proposition that “even if COVID-19 were present, it would not constitute a ‘direct physical loss’ because its presence could be eliminated by cleaning,” dismissing the complaint in Till Metro Entertainment v. Covington Specialty Insurance Co. for failure to state a claim.[30]

By that time, courts simply began relying on the bare number of other federal court opinions that had been issued agreeing with the Mama Jo’s rationale, and dubbed any other result as an “outlier” case.[31]

In sum, Mama Jo’s and its progeny inflicted damaging consequences for policyholders throughout the year, and will likely continue to do so absent judicial course-correction.

This includes recognition that judges are not scientists, and that it is not the court’s role — particularly at the motion to dismiss stage, where courts must accept the plaintiff’s allegations as true — to make cavalier conclusions about what a novel virus does or does not do to the physical components and space within any given property.

Fortunately, there are principles and precedents that will allow courts to avoid the errors committed by Mama Jo’s and its progeny — both in construing the phrase “loss of or damage to” to require some form of “physical alteration,” in finding that property exposed to COVID-19 suffers no loss or damage beyond the need for cleaning,[32] and in failing to meaningfully analyze applicable state law and the policy language at issue before concluding that no recovery is possible as a matter of law based on the perceived “consensus” reached by other federal courts.

R. Hugh Lumpkin is a partner and Garrett S. Nemeroff is an associate at Reed Smith LLP.

[1] Mama Jo’s, Inc. v. Sparta Insurance Company , 823 F. App’x 868 (11th Cir. Aug. 18, 2020).

[2] All-risk insurance policies generally cover any “fortuitous” losses—e.g., losses caused by an accident or any other unintentional event—unless the cause is specifically excluded under the terms of the policy.

[3] 823 F. App’x at 872.

[4] Id. at 872.

[5] Id. at 871, 872.

[6] Id. at 875.

[7] Id.

[8] Id.

[9] Id. at 879 (internal quotation marks omitted) (citing Homeowners Choice Prop. & Cas. v. Maspons , 211 So. 3d 1067 (Fla. 3d DCA 2017); Vazquez v. Citizens Prop. Ins. Corp. , 304 So. 3d 1280 (Fla. 3d DCA 2020)).

[10] Id. at 879.

[11] Id.

[12] Id.

[13] Id. at 878.

[14] Id. at 871.

[15] Azalea, Ltd. v. American States Ins. Co. , 656 So. 2d 600 (Fla. 1st DCA 1995) (finding that a chemical present in a water treatment plant that required the plant to close for cleaning and required replacement of the plant’s desirable bacteria colony involved “direct physical loss or damage” to the plant).

[16] Mama Jo’s, Inc. v. Sparta Ins. Co. , 2018 U.S. Dist. LEXIS 201852, at *24 (S.D. Fla. June 11, 2018) (citing Universal Image Prods., Inc. v. Fed. Ins. Co. , 475 F. App’x 569, 573 (6th Cir. 2012).

[17] Id. (citing MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co. , 187 Cal. App. 4th 766 (2010); AFLAC Inc. v. Chubb & Sons, Inc. , 260 Ga. App. 306 (2003); Port Auth. of New York & New Jersey v. Affiliated FM Ins. Co. , 311 F.3d 226, 236 (3d Cir. 2002)).

[18] Maspons involved a residential property policy; did not involve business interruption or all-risk coverage; did not interpret the same policy language at issue in Mama Jo’s and its progeny; has not been cited by any other Florida court; and contrary to Florida law, looked solely to Black’s Law Dictionary for the technical legal definition of “loss” rather than the ordinary meaning based on ordinary English language dictionaries, while also failing to recognize that interpreting “loss” to require a “physical alteration” conflates the two distinct terms “loss” and “damage” in the policy and thus renders “loss” superfluous. See, e.g., Gov’t Employees Ins. Co. v. Macedo , 228 So. 3d 1111, 1113 (Fla. 2017) (recognizing that undefined terms in insurance policies “must be given their plain and ordinary meaning, which may be supplied from legal and non-legal dictionary definitions”); Loss, Merriam-Webster Dictionary, www.merriam-webster.com/dictionary/loss (last visited Dec. 7, 2021) (defining “loss” to mean the “act of losing possession and deprivation”). Also, to be sure, Maspons found that there was a physical loss based on a drain pipe not performing its normal function, Maspons, 211 So. 3d at 1067 (“[T]he failure of [a] drain pipe to perform its function constituted a ‘direct’ and ‘physical’ loss.”)—much like the numerous businesses rendered uninhabitable and unusable by the COVID-19 virus, the pandemic, and the resulting stay-at-home orders. See also Azalea, Ltd., 656 So. 2d at 601. Mama Jo’s and its progeny have either ignored or failed to properly apply these binding principles.

[19] Malaube, LLC v. Greenwich Ins. Co. , 2020 U.S. Dist. LEXIS 156027, at *22–23 (S.D. Fla. Aug. 26, 2020).

[20] Id. at *23.

[21] Id.

[22] Nahmad v. Hartford Cas. Ins. Co. , 499 F. Supp. 3d 1178, 1180, 1184 (S.D. Fla. Nov. 1, 2020); see also Infinity Exhibits, Inc. v. Certain Underwriters at Lloyd’s London Known as Syndicate PEM 4000 , 489 F. Supp. 3d 1303, 1307 (M.D. Fla. Sept. 28, 2020) (citing Mama Jo’s and Malaube, dismissing complaint filed by trade show display manufacturer for failure to allege “direct physical loss or damage,” while acknowledging that “Mama Joe’s [sic] was not about closures related to COVID-19” and otherwise citing out-of-state cases not applying applicable Florida law); Atma Beauty, Inc. v. HDI Global Specialty SE , 2020 U.S. Dist. LEXIS 243999, at *8-9 (S.D. Fla. Dec. 30, 2020) (citing Mama Jo’s, Malaube, Nahmad, Infinity Exhibits, among other cases and granting motion to dismiss because the complaint did not allege “actual or tangible physical harm” to the property, and the court found “no reason to deviate from the prevailing consensus in this Circuit and others regarding business interruption claims arising from the COVID-19 pandemic”); Rococo Steak, LLC v. Aspen Specialty Ins. Co. , 2021 U.S. Dist. LEXIS 15191 (M.D. Fla. Jan. 27, 2021) (“[L]ike the coating of dust and debris in Mama Jo’s, the surfaces allegedly contaminated by COVID-19 seem to only require cleaning to fix.”); Cafe La Trova, LLC v. Aspen Specialty Ins. Co. , 519 F. Supp. 3d 1167, 1181 (S.D. Fla. Feb. 16, 2021) (citing Mama Jo’s and its progeny, albeit in the summary judgment context, for the proposition that under Florida law, “an item or structure that merely needs to be cleaned” has not suffered a “direct physical loss”).

[23] El Novillo Restaurant v. Certain Underwriters at Lloyd’s , 505 F. Supp. 3d 1343, 1350 (S.D. Fla. Dec. 7, 2020).

[24] Town Kitchen LLC v. Certain Underwriters at Lloyd’s , 522 F. Supp. 3d 1216, 1222 (S.D. Fla. Feb. 26, 2021).

[25] Id.

[26] See Amicus Curiae Brief of United Policyholders at 7, Mama Jo’s, Inc., dba Berries v. Sparta Ins. Co., No. 20-998 (filed Feb. 25, 2021) (“[D]espite sometimes acknowledging their duty to apply state law, these federal courts are nevertheless determining coverage by following federal courts in other jurisdictions that have made the same Erie error. This amounts to the development of a federal general common law of insurance coverage, a result outlawed since 1938 when Erie overruled Swift v. Tyson, 41 U.S. 1 (1842).”).

[27] Sosa v. Alvarez-Machain , 542 U.S. 692, 768-69 (2004) (Scalia, J., concurring).

[28] K D Unlimited, Inc. v. Owners Ins. Co. , 522 F. Supp. 3d 1287, 1294 (N.D. Ga. Jan. 5, 2021).

[29] Skillets, LLC v. Colony Ins. Co. , 524 F. Supp. 3d 484, 491 (E.D. Va. Mar. 10, 2021).

[30] Till Metro Entertainment v. Covington Specialty Ins. Co. , 2021 U.S. Dist. LEXIS 119917, at *23 (N.D. Okla. June 28, 2021) (citing Malaube and Promotional Headwear Int’l v. Cincinnati Ins. Co. , 504 F. Supp. 3d 1191 (D. Kan. 2020)); see also Circle Block Partners, LLC v. Fireman’s Fund Ins. Co. , 2021 U.S. Dist. LEXIS 140711, at *16 (S.D. Ind. July 27, 2021) (citing Mama Jo’s and other cases and dismissing complaint with prejudice); Valley Health Sys. v. Zurich Am. Ins. Co. , 2021 N.J. Super. Unpub. LEXIS 2505, at *13 (N.J. Super. Ct. Aug. 27, 2021) (citing Mama Jo’s for the proposition that “[w]here the virus is present it can be removed or neutralized through routine cleaning of surfaces with standard household cleaners,” and granting motion to dismiss); Windy City Limousine Co. v. Cincinnati Fin. Corp. , 2021 U.S. Dist. LEXIS 197638, at *23 (N.D. Ill. Oct. 14, 2021) (citing Mama Jo’s as support for the proposition that “[g]iven the ease with which the virus can be removed by routine cleaning, it cannot be said that it damages or otherwise physically alters the property with which it comes in contact”).

[31] See, e.g., Cafe Plaza De Mesilla, Inc. v. Cont’l Cas. Co. , 519 F. Supp. 3d 1006, 1014 (D.N.M. Feb. 16, 2021) (citing Malaube in support of order dismissing complaint for failure to state a claim, rejecting the argument that the property was at least “‘substantially unusable’ within the exceptions delineated upon by Mama Jo’s,” and summarily treating Blue Springs Dental Care, LLC v. Owners Ins. Co. , 488 F. Supp. 3d 867 (W.D. Mo. Sept. 21, 2020), which held that the potential presence of COVID-19 was sufficient to survive a motion to dismiss, as an “outlier case” in light of the “weight of recent authority, created by the deluge of coronavirus-related insurance disputes”).

[32] See, e.g., Serendipitous, LLC/Melt v. Cincinnati Ins. Co. , 2021 U.S. Dist. LEXIS 86998, at *16-17 (N.D. Ala. May 6, 2021) (“But the restaurants have alleged that they had to close entirely when employees tested positive for COVID-19. That distinguishes this case from Mama Jo’s. And the highly contagious nature of COVID-19 caused civil authorities to temporarily limit capacity in restaurants to prevent the spread of the physical but invisible virus in restaurants. Cleaning was only one precaution for COVID-19; physical distancing was another, and that distancing, allegedly by civil order and not by choice, deprived the restaurants of the use of their property, i.e. their tables and seating, while the temporary orders were in place. Mama Jo’s, a summary judgment opinion, does not require dismissal of the complaint in this action.”); Southern Dental Birmingham LLC v. Cincinnati Ins. Co. , 527 F. Supp. 3d 1341, 1348 (N.D. Ala. 2021) (distinguishing Mama Jo’s as “based on the fact that the restaurant remained open for ordinary operations in spite of the dust and debris, suggesting that the dust and debris did not damage the facility because it remained useful for ordinary operations,” whereas “Southern Dental has alleged that it had to close its facility because the presence of the coronavirus and the ongoing risk the virus presented made the facility unusable”).

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