Court of Appeals Affirms Judgment for Insurer That COVID-19 Caused No Direct Physical Loss or Damage to College Campus

Michael R. Giordano

Trustees of Purdue Univ. v. Am. Home Assurance Co. 

2024 WL 822503 (Ind. Ct. App. 2024)

Does an insurance policy that covers “all risks of direct physical loss” to property provide broader coverage than a policy that only covers “direct physical loss” to property? The Indiana Court of Appeals recently answered that question in the negative in what may prove to be the last COVID-19 business-interruption case to be reported at the appellate level.  

After Indiana Governor Eric Holcomb issued a shutdown order in response to the COVID-19 pandemic, Purdue University sought insurance coverage for its loss of business income. Purdue’s insurer, American Home Assurance Company, which issued an all-risk policy that covered “all risks of direct physical loss or damage” to Purdue’s property, denied coverage based on the lack of loss or damage. Purdue filed a declaratory judgment action to establish coverage, but the trial court entered summary judgment for Home Assurance. Purdue appealed.  

Purdue made two arguments on appeal. First, Purdue argued that the trial court erred in relying on the Court of Appeals’ decisions in Indiana Repertory Theatre v. Cincinnati Cas., 180 N.E.3d 403 (Ind. Ct. App. 2022) (holding that policy unambiguously required a physical loss or physical damage to trigger coverage) (“IRT I”) and Indiana Repertory Theatre, Inc. v. Cincinnati Cas., 203 N.E.3d 555 (Ind. Ct. App. 2023)(holding that COVID-19– which dies off—did not physically alter the insured’s theater)(“IRT II”). Purdue argued that unlike the policies interpreted in those decisions, Home Assurance’s policy covered “all risks” of direct physical loss or damage and thus was not constrained by the narrow “physical alteration” rule. Purdue continued that “all risks” was ambiguous and should cover a “physical hazard” like the COVID-19 virus, which posed a threat or impaired the safety or function of Purdue’s property. The Indiana Court of Appeals disagreed.  

The Court of Appeals held that including the words “all risk” in the policy would not cause reasonable people to disagree about what qualifies as “direct physical loss or damage.” The word “physical,” the Court of Appeals stated, modified both damage and loss, which meant there had to be “some physicality to either that loss or damage” to trigger coverage. Id. at *8 (quoting in part Sandy Point Dental P.C. v. Cincinnati Ins. Co., 20 F.4th 327, 332 (7th Cir. 2021)). The Court of Appeals agreed with the Seventh Circuit’s observation that if physicality were not required, “there would be no need for repair, rebuilding, or replacement,” as contemplated by the policy’s stated period of restoration.  

Secondly, Purdue argued that the trial court erred in not allowing Purdue the opportunity to show that some of its buildings were uninhabitable. The Court of Appeals rejected Purdue’s argument and held that the decision in IRT II “plainly rejected the idea that COVID-19 could independently render a structure uninhabitable.” Id. at *8. Therefore, the trial court’s ruling favor of American Home was upheld.  

Combined with IRT I and IRT II, this case is likely the nail in the coffin for arguing that COVID-19 alone triggers business-interruption coverage.