In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 21-2947
EAST COAST ENTERTAINMENT OF DURHAM, LLC,
Plaintiff-Appellant,
v.
HOUSTON CASUALTY COMPANY and AMERICAN CLAIMS
MANAGEMENT, INC.,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:20-cv-06551 — Joan B. Gottschall, Judge.
____________________
ARGUED MARCH 29, 2022 — DECIDED APRIL 12, 2022
____________________
Before FLAUM, ST. EVE, and JACKSON-AKIWUMI, Circuit
Judges.
ST. EVE, Circuit Judge. East Coast Entertainment of
Durham, LLC (“ECE”) owns and operates movie theaters in
North Carolina. Like many businesses, ECE lost money after
the Governor of North Carolina imposed statewide closures
in response to COVID-19. ECE submitted a claim for coverage
under its insurance policy with Houston Casualty Company
2 No. 21-2947
(“HCC”). HCC and American Claims Management (“ACM”),
its claims administrator, denied the claim, and ECE brought
this suit for declaratory relief and damages in Illinois state
court. Defendants removed the case to federal court under
diversity jurisdiction, 1 and the district court granted their
motion to dismiss, concluding that ECE failed to allege a
physical alteration of its property. Because our recent decision
in Sandy Point Dental, P.C. v. Cincinnati Insurance Co., 20 F.4th
327 (7th Cir. 2021), squarely governs this suit, we affirm.
I. Background
ECE’s insurance policy with HCC includes the following
“Business Income” coverage provision:
We will pay the actual loss of Business Income
you sustain due to the necessary “suspension”
of your “operations” during the “period of res-
toration.” The “suspension” must be caused by di-
rect physical loss of or damage to property at prem-
ises that are described in the Declarations and
for which a Business Income Limit of Insurance
is shown in the Declarations. The loss or dam-
ages must be caused by or result from a Covered
Cause of Loss.
(Emphasis added). The “period of restoration” is the period
between “the date of direct physical loss or damage to the
property” and either “[t]he date when the property should be
1 The amount in controversy is not in dispute, and the parties are diverse:
ECE is a citizen of South Carolina because the sole member of the LLC is
domiciled in South Carolina. HHC is a Texas citizen, and ACM is a Cali-
fornia citizen.
No. 21-2947 3
repaired, rebuilt or replaced with reasonable speed and simi-
lar quality” or “when business is resumed at a new perma-
nent location,” whichever occurs first.
A “Civil Authority” provision similarly covers “the actual
loss of Business Income you sustain and necessary Extra Ex-
pense caused by action of civil authority that prohibits access
to the described premises due to direct physical loss of or damage
to property, other than at the described premises, caused by or
resulting from any Covered Cause of Loss.” (Emphasis
added).
ECE sued for a declaratory judgment in favor of coverage,
as well as damages for bad-faith denial of coverage. ECE
contends the provisions above cover economic losses due to
COVID-related closures because the virus rendered ECE’s
property unsafe. The complaint alleges, for example, that the
virus can be “transmitted by way of human contact with
surfaces and items of physical property located at premises in
North Carolina.” The complaint also alleges: “It is likely that
airborne SARS-CoV-2 particles have been physically present
at Plaintiff’s premises … during the time the policy was in
effect.”
Defendants moved to dismiss the complaint for failure to
state a claim, arguing that the Policy does not provide cover-
age because ECE’s economic losses stem from the Governor’s
executive orders, not any physical alteration of or damage to
property. The district court agreed and granted their motion
to dismiss with prejudice. Because ECE’s bad-faith denial of
coverage claim depended upon the coverage determination,
that claim failed as well. The district court further concluded
that ECE failed to show a conflict between Illinois law and
4 No. 21-2947
North Carolina law regarding the plain and ordinary mean-
ing of “direct physical loss,” so Illinois law applied.
II. Discussion
We review de novo the grant of a motion to dismiss for
failure to state a claim. Crescent Plaza Hotel Owner, L.P. v. Zur-
ich Am. Ins. Co., 20 F.4th 303, 307 (7th Cir. 2021). A federal
court sitting in diversity applies the choice-of-law rules of the
forum state, here Illinois. Sosa v. Onfido, Inc., 8 F.4th 631, 637
(7th Cir. 2021). In the absence of an actual conflict between
Illinois law and the law of another state, the substantive law
of Illinois applies. Id. ECE, as the party seeking a choice-of-
law determination, bears the burden of demonstrating that a
conflict exists. Id.
Courts applying Illinois law aim to “ascertain the parties’
intent” by first consulting “the plain and ordinary meaning of
the contract language.” Am. Bankers Ins. Co. of Fla. v. Shockley,
3 F.4th 322, 327 (7th Cir. 2021) (internal quotation marks omit-
ted). “Undefined terms will be given their plain, ordinary,
and popular meaning; i.e., they will be construed with refer-
ence to the average, ordinary, normal, reasonable person.”
Sproull v. State Farm Fire & Cas. Co., ___ N.E.3d ___, 2021 IL
126446, ¶ 19. If an insurance policy is unambiguous, the court
must apply its terms as written. Crescent Plaza Hotel, 20 F.4th
at 308. Mere “disagreement between the parties as to meaning
does not itself make the policy ambiguous, and the court ‘will
not strain to find an ambiguity where none exists.’” Id. (quot-
ing Founders Ins. Co. v. Munoz, 930 N.E.2d 999, 1004, 237 Ill. 2d
424 (2010)).
No. 21-2947 5
A. Sandy Point Squarely Precludes Coverage
Shortly after ECE filed its opening brief on appeal, we is-
sued our opinion in Sandy Point Dental, P.C. v. Cincinnati In-
surance Co., 20 F.4th 327 (7th Cir. 2021). In Sandy Point, we
joined four other circuits in concluding that mere loss of use
due to COVID-related closures does not constitute “direct
physical loss” when unaccompanied by any physical altera-
tion to property. Id. at 330, 333 (applying Illinois law and col-
lecting cases). 2 On the same day, we reached an identical con-
clusion in two similar cases. See Bradley Hotel Corp. v. Aspen
Specialty Ins. Co., 19 F.4th 1002, 1004–05 (7th Cir. 2021) (apply-
ing Illinois law); Crescent Plaza Hotel, 20 F.4th at 306 (same).
Since then, three other circuits have joined this consensus, and
no court of appeals has held otherwise. 3
The policy provisions at issue in Sandy Point are materially
indistinguishable from ECE’s policy. See Sandy Point, 20 F.4th
at 330–31. As we explained in Sandy Point:
The phrase is “direct physical loss or damage.”
The words “direct physical” are most sensibly
read as modifying both “loss” and “damage.”
2 Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398, 401–03 (6th Cir.
2021) (applying Ohio law); Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th
1141, 1144 (8th Cir. 2021) (applying Iowa law); Mudpie, Inc. v. Travelers Cas.
Ins. Co., 15 F.4th 885, 892 (9th Cir. 2021) (applying California law); Gilreath
Family & Cosmetic Dentistry, Inc. v. Cincinnati Ins. Co., No. 21-11046, 2021
WL 3870697, at *2 (11th Cir. Aug. 31, 2021) (applying Georgia law).
3 Goodwill Indus. of Cent. Okla., Inc. v. Phila. Indemn. Ins. Co., 21 F.4th 704,
709 (10th Cir. 2021) (applying Oklahoma law); 10012 Holdings, Inc. v. Sen-
tinel Ins. Co., Ltd., 21 F.4th 216, 220 (2d Cir. 2021) (applying New York law);
Terry Black’s Barbecue, L.L.C. v. State Auto. Mut. Ins. Co., 22 F.4th 450, 455
(5th Cir. 2022) (applying Texas law).
6 No. 21-2947
But even if they can be divorced from “damage”
(and we do not think that they can), they indis-
putably modify “loss.” … Whatever “loss”
means, it must be physical in nature.
Id. at 332. “Even if the virus was present and physically at-
tached itself to Sandy Point’s premises, Sandy Point does not
allege that the virus altered the physical structures to which it
attached, and there is no reason to think that it could have
done so.” Id. at 335. Because the businesses in Sandy Point “al-
leged neither a physical alteration to property nor an access-
or use-deprivation so substantial as to constitute a physical
dispossession,” they failed to state a claim for coverage. Id.
at 337.
Try as it might, ECE similarly fails to allege a physical al-
teration of its property. The mere presence of the virus on sur-
faces did not physically alter the property, nor did the exist-
ence of airborne particles carrying the virus. ECE does not al-
lege that it needed to “repair[], rebuil[d] or replace[]” any
structures or items on the premises, or that its business “re-
sumed at a new permanent location,” as contemplated in the
Policy’s “period of restoration” definition. In short, the dis-
trict court properly concluded that ECE was not entitled to
coverage under the Policy.
Because ECE does not have a valid claim for coverage, its
bad-faith denial of coverage claim necessarily fails as well. See
Sandy Point, 20 F.4th at 337 (“[The insurer] could not have
been fraudulent or vexatious in denying coverage where ad-
equate grounds for coverage did not exist in the first place.”).
No. 21-2947 7
B. There is No Conflict of State Law
The growing national consensus regarding the meaning of
“direct physical loss” underscores that this case does not turn
on variations in state contract law. To the extent that ECE still
argues there is a conflict between Illinois law and North Car-
olina law, it has not satisfied its burden. See Sosa, 8 F.4th at
637. Both Illinois and North Carolina courts look to the plain
and ordinary meaning of terms in an insurance policy; where,
as here, those terms are unambiguous, there is no need to con-
strue them against the insurer. See, e.g., Register v. White, 599
S.E.2d 549, 553, 358 N.C. 691 (2004). Tellingly, multiple federal
district courts applying North Carolina law in COVID-19 in-
surance cases have reached the same conclusion as Sandy
Point. 4 In the absence of any conflict, Illinois law applies.
III. Conclusion
For the foregoing reasons, the district court’s judgment is
AFFIRMED.
4 See, e.g., Death & Taxes, LLC v. Cincinnati Ins. Co., No. 5:21-CV-125-D, 2022
WL 337196, at *1 (E.D.N.C. Feb. 2, 2022) (citing Sandy Point, 20 F.4th at 330–
34); Golden Corral Corp. v. Ill. Union Ins. Co., ___ F. Supp. 3d ___, 2021 WL
4097684, at *6–8 (E.D.N.C. Sept. 8, 2021); Summit Hosp. Grp., Ltd. v. Cincin-
nati Ins. Co., No: 5:20-CV-254-BO, 2021 WL 831013, at *3–4 (E.D.N.C. Mar.
4, 2021). Appeals are pending in all three cases, so the Fourth Circuit has
not yet weighed in.
East Coast Entertainment of Du v. Houston Casualty Company
Combined Opinion