Sixth Circuit Affirms No Coverage for COVID-19 Business Interruption Losses

February 27, 2026 | JacobiJournal.com — In a significant appellate decision shaping pandemic-related insurance litigation, the Sixth Circuit has affirmed that a national clothing retailer is not entitled to coverage for COVID-19 losses under its commercial property insurance policies. The ruling reinforces a growing judicial consensus that pandemic-related shutdowns do not trigger standard business interruption provisions.

The Sixth Circuit COVID-19 business interruption ruling confirms that neither Tennessee nor Pennsylvania law permits recovery absent direct physical loss or damage to property.

What Did the Court Decide?

The case was decided by the United States Court of Appeals for the Sixth Circuit, which reviewed a Tennessee federal district court’s dismissal of the retailer’s claim. The company had sought coverage for income losses and extra expenses incurred after government shutdown orders limited in-person retail operations during the early stages of the COVID-19 pandemic.

The appellate panel concluded that the lower court properly conducted its “choice of law” analysis and correctly determined that both Tennessee and Pennsylvania law require tangible, physical alteration of property to trigger coverage. Because the retailer alleged only economic losses tied to government closure orders—not structural or physical damage—its claim failed as a matter of law.

How Did Choice of Law Impact the Outcome?

A central issue was which state’s law applied to interpret the policy. The district court determined that Tennessee law governed certain aspects of the dispute, while Pennsylvania law applied to others, based on contractual and factual connections.

The Sixth Circuit found no reversible error in that analysis. Under both jurisdictions, courts have consistently held that virus-related shutdowns, without demonstrable physical alteration of insured premises, do not constitute “direct physical loss.”

This interpretation is consistent with decisions issued by several other federal appellate courts, reinforcing a cohesive judicial framework that has largely foreclosed recovery for COVID-19 business interruption claims absent tangible, physical property damage.

Why Do Courts Require “Direct Physical Loss”?

Most commercial property policies condition business interruption coverage on “direct physical loss of or damage to” insured property. Courts have interpreted this language to require a distinct, physical change—such as fire, water intrusion, or structural damage.

During the pandemic, policyholders argued that loss of use due to government closure orders or viral contamination satisfied the requirement. However, appellate courts—including the Sixth Circuit—have largely rejected that interpretation.

Judges reason that temporary loss of access or diminished functionality, without material alteration, does not transform property in a physical sense. As a result, insurers are not obligated to indemnify policyholders for pandemic-related income losses under standard policy wording.

What Does This Mean for Retail and Other Industries?

The Sixth Circuit COVID-19 business interruption ruling further narrows the path for policyholders pursuing unresolved pandemic claims. Retailers, restaurants, hospitality operators, and service businesses that relied on standard property forms face significant legal barriers absent policy endorsements specifically covering communicable disease risks.

Insurance carriers, for their part, have generally prevailed in these disputes, often citing virus exclusions or the absence of physical damage triggers. The decision reinforces underwriting certainty and reduces exposure tied to COVID-era claims.

Businesses evaluating risk management strategies going forward are increasingly examining policy language more closely, particularly endorsements addressing infectious disease or civil authority coverage.

For broader context on how courts nationwide have handled pandemic insurance litigation, readers may review resources from the Insurance Information Institute, which tracks coverage trends and judicial interpretations.

How Does This Fit Within Broader Fraud and Coverage Litigation Trends?

Although pandemic claims were not typically framed as fraud cases, courts have scrutinized policyholder allegations closely. Judicial opinions often emphasize strict textual analysis, underscoring that insurance recovery must align precisely with contractual terms.

This analytical rigor mirrors trends in other coverage disputes, including misrepresentation claims and contested loss valuations. Courts continue to reinforce that policy language governs—regardless of widespread economic hardship.

For insurers and insureds alike, clarity in drafting and reviewing commercial coverage remains critical to avoiding protracted litigation.

FAQs: Sixth Circuit COVID-19 Business Interruption Ruling

Does COVID-19 qualify as direct physical loss under commercial property policies?

No. The Sixth Circuit and most federal appellate courts have held that pandemic-related shutdowns and loss of use, without tangible alteration of property, do not satisfy the “direct physical loss” requirement.

Why did the court analyze both Tennessee and Pennsylvania law?

The dispute involved multi-state policy considerations. The court conducted a choice-of-law analysis and determined that, under both Tennessee and Pennsylvania law, coverage was barred because no physical damage was alleged.

What is business interruption insurance designed to cover?

Business interruption coverage typically applies when a covered peril—such as fire or water damage—causes physical damage that forces a temporary suspension of operations. It compensates for lost income and certain operating expenses during restoration.

Are any COVID-19 insurance claims still viable?

Some claims may proceed if policies contain specific communicable disease endorsements or lack virus exclusions. However, standard property forms without such provisions have largely failed in appellate courts.

Businesses and legal professionals tracking coverage litigation should subscribe to JacobiJournal.com for ongoing analysis of appellate decisions, fraud investigations, and insurance enforcement trends.