By Shawn Rice

Law360 (April 20, 2021, 2:04 PM EDT) -- A Texas federal judge tossed a local spice and tea room's business interruption suit against Continental Casualty Co. on Tuesday, saying the shop couldn't show a physical loss was caused by government shutdown orders made to curb the coronavirus pandemic.

U.S. District Judge Amos L. Mazzant III ruled a physical loss under the Continental policy meant a structural alteration had to happen at the Spice & Tea Merchants store in McKinney, Texas. But Aggie Investments LLC, the shop's owner, didn't show that the government orders had caused this type of loss, the judge said.

"Aggie Investments complains that government orders restricted access to its property," Judge Mazzant said, dismissing the suit with prejudice. "But loss of access, or even restricted access, is not the tangible alteration of structures that 'direct physical loss' contemplates."

Spice & Tea Merchants was forced to close its shop temporarily under government orders to help stop the spread of the virus, according to the shop owner's suit. Aggie Investments said Continental, which had denied coverage, was responsible for paying the shop's business losses under the shutdown as well as other losses connected to restrictions placed on the shop upon its reopening.

Aggie Investments argued there was a "direct physical loss" caused by the government orders and that the loss of use of the shop triggered coverage. Continental asked to have the suit tossed, arguing there wasn't any "demonstrable, physical harm" shown to have happened to the shop.

Judge Mazzant agreed with Continental, finding there had to be physical harm to the property to trigger the policy's business income and civil authority provisions.

Judge Mazzant held there wasn't a causal link between prior tangible damage and the government orders. Rather, the shutdown orders were taken in a preemptive measure to the threat of the coronavirus and not in response to structural changes or property damage at other premises, according to the judge.

Policyholders have struggled in Texas federal courts, with data from the University of Pennsylvania Carey Law School showing insurers have scored victories in 13 of 15 business interruption suits.

A lighting and production design company's COVID-19 business interruption suit was recently recommended to be tossed. COVID-19 is the respiratory ailment caused by the coronavirus. A Texas federal magistrate said the lighting company didn't show any property damage caused by the government orders triggering coverage for economic losses.

An insurer scored a win over a Texas car wash when a federal judge ruled the virus exclusion barred coverage for losses from the pandemic. And a Dallas eatery group couldn't show any "physical loss" caused by the government orders to its restaurants, according to a Texas federal judge.

Finally, a Texas federal judge ended a dentist's suit for pandemic-related losses, saying coverage for a "physical loss" didn't need to prove structural damage to the property. Rather, the dental practice failed to show the coronavirus was present in the office, according to the judge.

Representatives of Aggie Investments and Continental didn't respond to requests for comment Tuesday.

Aggie Investments is represented by Alexander N. Beard and Mark D. Johnson of Saunders Walsh & Beard.

Continental is represented by David H. Timmins and Erin E. Clark of Husch Blackwell LLP.

The case is Aggie Investments LLC v. Continental Casualty Co., case number 4:21-cv-0013, in the U.S. District Court for the Eastern District of Texas.

--Additional reporting by Daphne Zhang and Mike Curley. Editing by Neil Cohen.

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