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Federal appeals court dismisses childcare centers’ COVID suit

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A federal appeals court Tuesday affirmed the dismissal of COVID-19 business interruption litigation filed by Illinois and Michigan childcare centers, citing other courts’ rulings.

Waterford, Michigan-based Paradigm Care & Enrichment Center LLC, which operates childcare centers in Waterford and Canton, Michigan, and Creative Paths Learning Center and Creative Paths Infant Center in Skokie, Illinois, filed suit against West Bend, Wisconsin-based West Bend Mutual Insurance Co. seeking coverage under their all-risk commercial property insurance policies, according to the ruling by the 7th U.S. Circuit Court of Appeals in Chicago in Paradigm Care Enrichment Center, LLC et al., v. West Bend Mutual Insurance Co.

 A three-judge appeals court panel affirmed the ruling by the U.S. District Court in Milwaukee dismissing the case.

The  7th Circuit panel cited the appellate court’s previous decision in Sandy Point Dental, P.C. v. Cincinnati Insurance Co., which it said was based on Illinois law.

 It said that while Michigan’s Supreme Court has not yet ruled on the issue, a Michigan Court of Appeals had ruled against the policyholder in Gavrilides Management v. Michigan Insurance Co. 

“Construing the ordinary meaning of the phrase under various States’ laws, the circuits have all reached the same general conclusion as the Sixth Circuit when applying Michigan law: An insurance policy limiting coverage to ‘direct physical loss’ requires either ‘destruction or alteration of the property, or dispossession from the property,’” it said.

“The Centers point to no authority suggesting that the Supreme Court of Michigan would reject this consensus,” the panel said, adding it agrees with the district court that the complaint “does not allege direct physical loss or damage.”

Attorneys in the case had no comment or did not respond to a request for comment.

On Monday, the 9th U.S. Circuit Court of Appeals in San Francisco ruled in favor of an American International Group Inc. unit and affirmed a lower court ruling that an event and venue management business is not entitled to COVID19-related business interruption coverage, citing the plaintiff’s virus exclusion.