First Watch Restaurants, Inc. v. Zurich American Insurance Company

USCA11 Case: 21-10671 Date Filed: 05/24/2022 Page: 1 of 5

[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit

____________________

No. 21-10671
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FIRST WATCH RESTAURANTS, INC.,
Plaintiff-Appellant,
versus
ZURICH AMERICAN INSURANCE COMPANY,

Defendant-Appellee.

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Appeal from the United States District Court
for the Middle District of Florida
D.C. Docket No. 8:20-cv-02374-VMC-TGW
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2 Opinion of the Court 21-10671

Before GRANT, LUCK, and ANDERSON, Circuit Judges.
PER CURIAM:
First Watch Restaurants (“First Watch”) filed the underlying
action for breach of contract and a declaratory judgment that its
business losses and extra expenses were covered by the policy it
had with insurer Zurich American Insurance Company (“Zurich”).
Specifically, First Watch alleges that it suffered the “direct physical
loss of the ability to operate the insured properties,” which in turn
led to loss of business income and extra expenses when governors
in the various states where it has restaurants issued executive or-
ders prohibiting restaurants from offering on-site food consump-
tion.
The parties agree that Florida law governs the interpreta-
tions of this insurance policy, and the case has been litigated with
that understanding. Accordingly, we apply Florida law.
This Court recently addressed the very issue in this case: the
meaning of “direct physical loss of or damage to” property in an
insurance policy under Florida law. SA Palm Beach, LLC v. Certain
Underwriters at Lloyd’s London, No. 20-14812, 2022 WL 1421414
(11th Cir. May 5, 2022). Noting that there were no Florida state
court cases on point, we cited the principle used by federal courts
sitting in diversity jurisdiction that “presume[s] that [state] courts
would adopt the majority view on a legal issue in the absence of
indications to the contrary.” Id. at *8 (quoting Bobo v. Tenn. Val-
ley Auth., 855 F.3d 1294, 1304 (11th Cir. 2017)). That majority view
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21-10671 Opinion of the Court 3

is that intangible or incorporeal losses are excluded from coverage
so as to “‘preclude any claim against the property insurer when the
insured merely suffers a detrimental economic impact unaccompa-
nied by a distinct, demonstrable, physical alteration of the prop-
erty.’” Id. (quoting Steven Plitt et al., 10A Couch on Insurance §
148.46 (3d ed. & Dec. 2021 update)). We also noted that every state
and federal appellate court to decide the meaning of the phrase in
the Covid-19 context had reached the same decision. Id. Because
there were no indications that Florida would decide otherwise, the
opinion presumes Florida would adopt the majority view. Id. at
*9.
Next, we examined two Florida cases–Homeowners Choice
Property & Casualty v. Maspons, 211 So. 3d 1067 (Fla. 3d DCA
2017), and Azalea, Ltd. v. American States Insurance Co., 656 So.
2d 600 (Fla. 1st DCA 1995)–that support the presumption or “at the
very least [are] not inconsistent with that position.” Id. Maspons
explained that direct physical loss required the damage be actual
and Azalea “dealt with tangible harm to the covered property,”
which provided little support for the insureds’ position. Id. at *9-
10. We examined this Court’s decision in Mama Jo’s, Inc. v. Sparta
Ins. Co., 823 F.App’x 868, 879 (11th Cir. 2020), and held that its re-
liance on Maspons provided a correct statement of Florida law that
a property that needed mere cleaning did not suffer a qualifying
loss or damage and lost income could not be claimed without phys-
ical loss or damage. Id. at *10. Then we turned to the policies’
“Period of Restoration” clauses, which required a suspension or
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4 Opinion of the Court 21-10671

interruption of operations and covered the resulting expenses and
losses until the property was repaired, rebuilt, or replaced. “Any
alternative meaning of the terms ‘physical loss’ or ‘physical dam-
age’ that does not require a material alteration of the property
would render meaningless this pre-condition to coverage for busi-
ness income loss.” Id. at *11 (quoting Uncork & Create LLC v.
Cincinnati Ins. Co., 27 F.4th 926, 932-33 (4th Cir. 2022)).
Shortly after we issued SA Palm Beach, the Third District
Court of Appeal of Florida issued an opinion addressing the very
issue in this case and in SA Palm Beach: the meaning of “direct
physical loss of or damage to” property. Commodore, Inc. v. Cer-
tain Underwriters at Lloyd’s London, No. 3D21-0671, __ So. 3d __,
2022 WL 1481776 (Fla. 3d DCA May 11, 2022), confirmed our pre-
diction in SA Palm Beach of how Florida courts would rule. The
Commodore court rejected the insured’s interpretation of loss as
deprivation because it ignored the qualifying adjective physical:
“because the ordinary meaning of ‘physical’ carries a tangible as-
pect, ‘direct physical loss’ requires some actual alteration to the in-
sured property.” Id. at *4.
First Watch’s arguments are foreclosed by the interpreta-
tions of the phrase “direct physical loss of or damage to” in SA Palm
Beach and in Commodore. Both of the provisions under which
First Watch sought coverage contain that language. We reject First
Watch’s argument that its policy’s language is distinguishable from
the policy language in the several cases before this Court in SA
Palm Beach. We readily conclude that there is no principled
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21-10671 Opinion of the Court 5

difference. Further, although it does not have a provision labelled
“Period of Restoration,” it does have one that is functionally the
same labelled “Period of Liability.” Because there is no coverage
for the type of purely economic damages that First Watch sought
under either of its cited policy provisions, we affirm the decision of
the district court.
AFFIRMED.