A federal appellate court reversed a rare policyholder win in a COVID-19-related business interruption claim, once again holding that government orders that restrict the use of a property do not constitute a “direct physical loss or damage” that requires coverage.

A panel of the 6th Circuit Court of Appeals in late September vacated a decision by the Northern District of Ohio that granted summary judgment in Henderson Road Restaurant Systems Inc. et al. v Zurich American Insurance Co.

The two-page opinion notes that on Sept. 22, the appellate court had ruled in a lawsuit filed by Santo’s Italian Cafe that a “pandemic-triggered government order” that barred in-person dining did not qualify as a direct physical loss or damage under Ohio law.

The 6th Circuit’s latest decision was reported Thursday by the University of Pennsylvania’s COVID-19 litigation tracker. Law professor Tom Baker, who maintains the tracker, penned a blog questioning why the appellate court decided to rule on the case before the Ohio Supreme Court issued an opinion.

The Ohio Supreme Court has been asked to decide whether government shutdowns can cause a direct physical loss in a lawsuit filed by Neuro Communication Services and has received briefs from advocates for both sides. Any ruling by a federal court on the question is essentially a “guess” about how the state’s highest court will rule, Baker said.

In fact, the term “Erie guess” is derived from a 1938 U.S. Supreme Court decision that federal courts must apply state law when deciding issues that don’t involve federal questions by guessing how state supreme courts would rule on questions of law.

“Why the 6th Circuit didn’t wait for that decision (or certify to the Ohio Supreme Court the closely related question in Santo’s and Henderson) is a mystery,” Baker wrote.

The owners of Henderson Road and several other restaurants based in Ohio, Michigan, Pennsylvania and Florida sued Zurich after the carrier denied their business interruption claims. U.S. District Judge Dan Aaron Polster granted summary judgment in favor of the restaurants’ breach-of-contract claims but dismissed a complaint that the carrier had acted in bad faith.

The judge’s Jan. 19 opinion says a virus exclusion in the policy did not apply because government orders caused the loss of income, and that those orders caused a “physical loss of property.”

Polster’s order also allowed Zurich to file an immediate appeal before the question of damages was resolved.

“An interlocutory appeal of this dispositive issue will enable the parties to appeal the legal issue before spending additional time and money on the issue of damages,” the case docket states.

The 8th and 11th Circuit Courts have also issued opinions ruling against policyholders seeking coverage for income lost because of government public health orders.