NOT RECOMMENDED FOR PUBLICATION File Name: 22a0533n.06
No. 21-3224
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT FILED Dec 21, 2022 ) FAMILY TACOS, LLC, DEBORAH S. HUNT, Clerk ) Plaintiff-Appellant, ) ) ON APPEAL FROM THE UNITED v. ) STATES DISTRICT COURT FOR ) THE NORTHERN DISTRICT OF AUTO-OWNERS INSURANCE COMPANY, ) OHIO Defendant-Appellee. ) ) OPINION )
Before: MOORE, GRIFFIN, and MURPHY, Circuit Judges.
MURPHY, Circuit Judge. Family Tacos, LLC, operates two restaurants in northeast Ohio.
Like many restaurant owners, it lost substantial business due to the COVID-19 pandemic and the
ensuing government orders that restricted in-person dining. Family Tacos sought to recover this
lost income under a commercial insurance policy that it purchased from Auto-Owners Insurance
Company. The policy obligates Auto-Owners to pay for some amounts of lost income when this
economic loss grows out of a “direct physical loss of or damage to” Family Tacos’ property.
Policy, R.5-2, PageID 237. The district court granted Auto-Owners’ motion to dismiss because
neither the pandemic nor the government shutdown caused a “direct physical loss of or damage
to” Family Tacos’ restaurants. In the meantime, another district court asked the Ohio Supreme
Court to consider a similar insurance-policy question. See Neuro-Commc’n Servs., Inc. v.
Cincinnati Ins. Co., __ N.E.3d __, 2022 WL 17573883, at *3 (Ohio Dec. 12, 2022). We held this No. 21-3224, Family Tacos, LLC v. Auto-Owners Ins. Co.
case for the Ohio Supreme Court’s answer. That court has now interpreted similar policy language
to bar coverage in these circumstances—consistent with our own prior answer to this question.
See id. at *4 (quoting Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398, 402 (6th Cir.
2021)). Bound by Neuro-Communication, we affirm.
I
Family Tacos operates two restaurants in Kent, Ohio. Like many Ohio restaurant owners,
Family Tacos has unfortunately suffered significant losses from the combined effects of the
COVID-19 pandemic and the follow-on government orders that prohibited in-person dining.
Before the pandemic, Family Tacos had purchased an “all-risk” commercial insurance
policy from Auto-Owners. This policy indicates generally that Auto-Owners will cover “direct
physical loss of or damage to” Family Tacos’ property. Policy, R.5-2, PageID 223. Two other
types of coverage are relevant. The policy’s “Business Income Provision” allows Family Tacos
to seek certain lost income or extra expenses from Auto-Owners. Specifically, this provision
permits Family Tacos to recover for the “actual loss of Business Income” resulting from a
“suspension” of its restaurant operations if the suspension is “caused by direct physical loss of or
damage to” Family Tacos’ property. Id., PageID 237. It also permits Family Tacos to recover
other “necessary expenses” that the company “would not have incurred if there had been no direct
physical loss or damage to property[.]” Id.
The policy’s “Civil Authority Provision” next allows Family Tacos to seek lost income and
extra expenses incurred as a result of governmental responses to damage to neighboring property.
The policy provides that Family Tacos may seek its income and expenses if an “action of civil
authority” (that is, a government action) prohibits it from accessing its restaurants because of
“damage to” nearby properties that was caused by a “Covered Cause of Loss.” Id., PageID 238.
2 No. 21-3224, Family Tacos, LLC v. Auto-Owners Ins. Co.
The policy defines “Covered Cause of Loss” to mean “Risks of Direct Physical Loss.” Id., PageID
246.
The policy also contains many exclusions that prohibit coverage even if it would otherwise
insure certain losses. Among other exclusions, the policy notes that Auto-Owners will not pay for
losses caused by a virus that can induce “physical distress, illness or disease.” Id., PageID 247.
Once the pandemic hit, Family Tacos sought to recover its lost income under the Business
Income Provision and the Civil Authority Provision. Before Auto-Owners could resolve this
request, Family Tacos sued it in state court. Family Tacos sought a declaratory judgment that it
was entitled to coverage and alleged that Auto-Owners’ denial of coverage would breach both the
policy and the covenant of good faith and fair dealing. Family Tacos also sought to certify a class
action made up of several classes of businesses. Auto-Owners removed the case to federal court
on the basis of diversity jurisdiction and the Class Action Fairness Act.
Auto-Owners then moved to dismiss Family Tacos’ complaint for failure to state a claim.
The district court granted this motion. Family Tacos, LLC v. Auto Owners Ins. Co., 520
F. Supp. 3d 909, 912 (N.D. Ohio 2021). It reasoned that neither the pandemic nor the government
shutdown orders qualified as a “direct physical loss” to Family Tacos’ property that could trigger
coverage for lost income under the Business Income Provision. Id. at 915–21. This reading of
“direct physical loss,” the court next noted, also disqualified Family Tacos from coverage under
the Civil Authority Provision. Id. at 921. This provision required the damage to nearby property
to arise from a “Covered Cause of Loss,” a phrase that the policy equated with a “direct physical
loss.” Id. The court went on to hold, in the alternative, that Family Tacos’ claim fell within the
exclusion for losses caused by a virus. Id. at 922.
3 No. 21-3224, Family Tacos, LLC v. Auto-Owners Ins. Co.
Family Tacos appealed. We review the district court’s dismissal of its complaint de novo.
See Wilkerson v. Am. Fam. Ins. Co., 997 F.3d 666, 668 (6th Cir. 2021).
II
We start by framing the narrow nature of the parties’ debate. The parties agree that Ohio
contract law governs. They also agree on the governing contract rules: Ohio courts interpret
unambiguous contract terms as written and they construe ambiguous terms in favor of the insured.
See Neuro-Commc’n, 2022 WL 17573883, at *3; Dominish v. Nationwide Ins. Co., 953 N.E.2d
820, 822 (Ohio 2011); Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm, 652 N.E.2d 684, 686
(Ohio 1995). The parties likewise agree that their dispute under the Business Income Provision
turns on whether Family Tacos suffered a “direct physical loss of or damage to” its property.
Policy, R.5-2, PageID 237. And Family Tacos does not challenge the district court’s further
conclusion that the Civil Authority Provision also requires a “direct physical loss” because it notes
that the “damage to” nearby property must result from a “Covered Cause of Action.” Id., PageID
238. Given these points of agreement, this appeal boils down to whether the spread of COVID-19
or the ensuing government shutdown orders could qualify as a “direct physical loss of or damage
to” Family Tacos’ restaurants (or nearby properties). Auto-Owners says that this text is
unambiguous and requires a tangible harm to property. Family Tacos responds that “direct
physical loss” is ambiguous and could be read to cover limits on the use of property.
The Ohio Supreme Court decided to consider a similar question in Neuro-Communication.
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NOT RECOMMENDED FOR PUBLICATION File Name: 22a0533n.06
No. 21-3224
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT FILED Dec 21, 2022 ) FAMILY TACOS, LLC, DEBORAH S. HUNT, Clerk ) Plaintiff-Appellant, ) ) ON APPEAL FROM THE UNITED v. ) STATES DISTRICT COURT FOR ) THE NORTHERN DISTRICT OF AUTO-OWNERS INSURANCE COMPANY, ) OHIO Defendant-Appellee. ) ) OPINION )
Before: MOORE, GRIFFIN, and MURPHY, Circuit Judges.
MURPHY, Circuit Judge. Family Tacos, LLC, operates two restaurants in northeast Ohio.
Like many restaurant owners, it lost substantial business due to the COVID-19 pandemic and the
ensuing government orders that restricted in-person dining. Family Tacos sought to recover this
lost income under a commercial insurance policy that it purchased from Auto-Owners Insurance
Company. The policy obligates Auto-Owners to pay for some amounts of lost income when this
economic loss grows out of a “direct physical loss of or damage to” Family Tacos’ property.
Policy, R.5-2, PageID 237. The district court granted Auto-Owners’ motion to dismiss because
neither the pandemic nor the government shutdown caused a “direct physical loss of or damage
to” Family Tacos’ restaurants. In the meantime, another district court asked the Ohio Supreme
Court to consider a similar insurance-policy question. See Neuro-Commc’n Servs., Inc. v.
Cincinnati Ins. Co., __ N.E.3d __, 2022 WL 17573883, at *3 (Ohio Dec. 12, 2022). We held this No. 21-3224, Family Tacos, LLC v. Auto-Owners Ins. Co.
case for the Ohio Supreme Court’s answer. That court has now interpreted similar policy language
to bar coverage in these circumstances—consistent with our own prior answer to this question.
See id. at *4 (quoting Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398, 402 (6th Cir.
2021)). Bound by Neuro-Communication, we affirm.
I
Family Tacos operates two restaurants in Kent, Ohio. Like many Ohio restaurant owners,
Family Tacos has unfortunately suffered significant losses from the combined effects of the
COVID-19 pandemic and the follow-on government orders that prohibited in-person dining.
Before the pandemic, Family Tacos had purchased an “all-risk” commercial insurance
policy from Auto-Owners. This policy indicates generally that Auto-Owners will cover “direct
physical loss of or damage to” Family Tacos’ property. Policy, R.5-2, PageID 223. Two other
types of coverage are relevant. The policy’s “Business Income Provision” allows Family Tacos
to seek certain lost income or extra expenses from Auto-Owners. Specifically, this provision
permits Family Tacos to recover for the “actual loss of Business Income” resulting from a
“suspension” of its restaurant operations if the suspension is “caused by direct physical loss of or
damage to” Family Tacos’ property. Id., PageID 237. It also permits Family Tacos to recover
other “necessary expenses” that the company “would not have incurred if there had been no direct
physical loss or damage to property[.]” Id.
The policy’s “Civil Authority Provision” next allows Family Tacos to seek lost income and
extra expenses incurred as a result of governmental responses to damage to neighboring property.
The policy provides that Family Tacos may seek its income and expenses if an “action of civil
authority” (that is, a government action) prohibits it from accessing its restaurants because of
“damage to” nearby properties that was caused by a “Covered Cause of Loss.” Id., PageID 238.
2 No. 21-3224, Family Tacos, LLC v. Auto-Owners Ins. Co.
The policy defines “Covered Cause of Loss” to mean “Risks of Direct Physical Loss.” Id., PageID
246.
The policy also contains many exclusions that prohibit coverage even if it would otherwise
insure certain losses. Among other exclusions, the policy notes that Auto-Owners will not pay for
losses caused by a virus that can induce “physical distress, illness or disease.” Id., PageID 247.
Once the pandemic hit, Family Tacos sought to recover its lost income under the Business
Income Provision and the Civil Authority Provision. Before Auto-Owners could resolve this
request, Family Tacos sued it in state court. Family Tacos sought a declaratory judgment that it
was entitled to coverage and alleged that Auto-Owners’ denial of coverage would breach both the
policy and the covenant of good faith and fair dealing. Family Tacos also sought to certify a class
action made up of several classes of businesses. Auto-Owners removed the case to federal court
on the basis of diversity jurisdiction and the Class Action Fairness Act.
Auto-Owners then moved to dismiss Family Tacos’ complaint for failure to state a claim.
The district court granted this motion. Family Tacos, LLC v. Auto Owners Ins. Co., 520
F. Supp. 3d 909, 912 (N.D. Ohio 2021). It reasoned that neither the pandemic nor the government
shutdown orders qualified as a “direct physical loss” to Family Tacos’ property that could trigger
coverage for lost income under the Business Income Provision. Id. at 915–21. This reading of
“direct physical loss,” the court next noted, also disqualified Family Tacos from coverage under
the Civil Authority Provision. Id. at 921. This provision required the damage to nearby property
to arise from a “Covered Cause of Loss,” a phrase that the policy equated with a “direct physical
loss.” Id. The court went on to hold, in the alternative, that Family Tacos’ claim fell within the
exclusion for losses caused by a virus. Id. at 922.
3 No. 21-3224, Family Tacos, LLC v. Auto-Owners Ins. Co.
Family Tacos appealed. We review the district court’s dismissal of its complaint de novo.
See Wilkerson v. Am. Fam. Ins. Co., 997 F.3d 666, 668 (6th Cir. 2021).
II
We start by framing the narrow nature of the parties’ debate. The parties agree that Ohio
contract law governs. They also agree on the governing contract rules: Ohio courts interpret
unambiguous contract terms as written and they construe ambiguous terms in favor of the insured.
See Neuro-Commc’n, 2022 WL 17573883, at *3; Dominish v. Nationwide Ins. Co., 953 N.E.2d
820, 822 (Ohio 2011); Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm, 652 N.E.2d 684, 686
(Ohio 1995). The parties likewise agree that their dispute under the Business Income Provision
turns on whether Family Tacos suffered a “direct physical loss of or damage to” its property.
Policy, R.5-2, PageID 237. And Family Tacos does not challenge the district court’s further
conclusion that the Civil Authority Provision also requires a “direct physical loss” because it notes
that the “damage to” nearby property must result from a “Covered Cause of Action.” Id., PageID
238. Given these points of agreement, this appeal boils down to whether the spread of COVID-19
or the ensuing government shutdown orders could qualify as a “direct physical loss of or damage
to” Family Tacos’ restaurants (or nearby properties). Auto-Owners says that this text is
unambiguous and requires a tangible harm to property. Family Tacos responds that “direct
physical loss” is ambiguous and could be read to cover limits on the use of property.
The Ohio Supreme Court decided to consider a similar question in Neuro-Communication.
2022 WL 17573883, at *3. In that case, the relevant insured business provided “hearing and
balance services to its patients[.]” Id. at *2. The Ohio government’s shutdown orders forced it to
close its operations for about six weeks, and it sought reimbursement for lost income under a
similar insurance policy issued by Cincinnati Insurance Company. Id. The Ohio Supreme Court
4 No. 21-3224, Family Tacos, LLC v. Auto-Owners Ins. Co.
rejected the business’s argument that the phrase “physical loss” could include a loss of use of its
property to serve customers. Id. at *4. It reasoned that a “physical loss” requires “loss or damage
to Covered Property that is physical in nature” and thus does not cover simply “a loss of the ability
to use Covered Property for business purposes.” Id.
In the process, the Ohio Supreme Court agreed with our own prior decision in Santo’s. See
2022 WL 17573883, at *4. Like this case, Santo’s concerned an Ohio restaurant owner seeking to
recover business losses caused by the pandemic and the Ohio government’s responses restricting
in-person dining. See 15 F.4th at 400. And like Auto-Owners’ insurance policy, the policy in
Santo’s covered the loss of business income resulting from a suspension of operations “‘caused by
direct physical loss of or damage to property’ at the restaurant.” Id. (citation omitted). Santo’s
held that this phrase (“direct physical loss of or damage to” property) unambiguously excluded
losses arising from COVID-19 or related government shutdown orders. Id. at 401–02. We
interpreted this language as covering only “tangible” deprivations of or “tangible” harms to
property, like those caused by a theft or fire. See id. at 403 (citing 10A Steven Plitt et al., Couch
on Insurance § 148:3 (2021)). The Ohio Supreme Court’s approval of Santo’s confirms that we
properly applied Ohio contract law. See Neuro-Commc’n, 2022 WL 17573883, at *4.
This case raises the same question as Neuro-Communication (and Santo’s), so we must
reach the same answer. In cases governed by Ohio contract law, we “must follow the controlling
decisions of the Ohio Supreme Court.” Henry v. Wausau Bus. Ins. Co., 351 F.3d 710, 713 (6th
Cir. 2003). And we see no basis to distinguish the contract in this case from the one in Neuro-
Communication. Cf. SAS Int’l, Ltd. v. Gen. Star Indem. Co., 36 F.4th 23, 26–29 (1st Cir. 2022).
To be sure, a phrase in one contract does not necessarily take the same meaning as the same
phrase in another contract if the context suggests that the parties intended a different meaning. See
5 No. 21-3224, Family Tacos, LLC v. Auto-Owners Ins. Co.
Wilkerson, 997 F.3d at 669–70. But the context suggests that the parties meant for the same
meaning across these cases. To begin with, specialized trade usages can support an inference of
consistent meaning. Cf. Frigaliment Importing Co. v. B.N.S. Int’l Sales Corp., 190 F. Supp. 116,
119 (S.D.N.Y. 1960) (Friendly, J.). And, as Santo’s recognized, the phrases at issue in these cases
“are the general touchstones of coverage . . . for most commercial property insurance policies.”
15 F.4th at 402 (citing 10A Couch on Insurance § 148:46). That is perhaps why—as the Ohio
Supreme Court noted—the great weight of appellate authority to consider this question has
interpreted similar insurance policies in the same way (under other states’ laws). See Neuro-
Commc’n, 2022 WL 17573883, at *7; see, e.g., Ryan P. Estes, D.M.D., M.S., P.S.C. v. Cincinnati
Ins. Co., 23 F.4th 695, 699–702 (6th Cir. 2022) (Kentucky law); Mudpie, Inc. v. Travelers Cas.
Ins. Co. of Am., 15 F.4th 885, 890–91 (9th Cir. 2021) (California law); SAS Int’l, 36 F.4th at 26–
29 (1st Cir. 2022) (Massachusetts law); Q Clothier New Orleans, L.L.C. v. Twin City Fire Ins. Co.,
29 F.4th 252, 258–60 (5th Cir. 2022) (Louisiana law); Oral Surgeons, P.C. v. Cincinnati Ins. Co.,
2 F.4th 1141, 1143–44 (8th Cir. 2021) (Iowa law); see also Cherokee Nation v. Lexington Ins. Co.,
__ P.3d __, 2022 WL 4138429, *4 n.13 (Okla. Sept. 13, 2022) (citing cases).
In addition, other provisions in Auto-Owners’ policy confirm that the policy uses “direct
physical loss” in the same way to require tangible harm. Like the policy in Neuro-Communication,
the Business Income Provision permits an insured to recover income for business suspensions only
during a “period of restoration”—a defined period that ends when the property should have been
“repaired, rebuilt or replaced with reasonable speed and similar quality[.]” Policy, R.5-2, PageID
237, 245. This provision would make no sense if “direct physical loss” need not be tangible. See
Neuro-Commc’n, 2022 WL 17573883, at *4; see also Santo’s, 15 F.4th at 402–03. Likewise, the
Civil Authority Provision applies only if the government restricts Family Tacos’ ability to access
6 No. 21-3224, Family Tacos, LLC v. Auto-Owners Ins. Co.
its restaurants either because of the “dangerous physical conditions” of the nearby damaged
property or because the government needs “unimpeded access to the damaged property.” Policy,
R.5-2, PageID 238. This provision, too, contemplates tangible property harm.
In sum, we are bound by Neuro-Communication’s interpretation. Under its analysis,
Family Tacos has not adequately alleged the required “direct physical loss of or damage to” its
property or to nearby properties simply from its loss of use. Neuro-Commc’n, 2022 WL 17573883,
at *4. As we noted in Santo’s, therefore, we need not consider any other interpretive question,
such as whether the virus exclusion would otherwise have barred Family Tacos’ claim. See
15 F.4th at 406–07.
We affirm.