Dakota Girls, LLC v. Philadelphia Indemnity Insurance Company

RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 21a0250p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
DAKOTA GIRLS, LLC; DUBLIN ASHANIK, LLC; EDUCARE
OF GREENE, INC.; CAMPBELL FAMILY CHILDCARE, INC.;
LILLYPAD LEARNING CENTER, LLC; FUQUA NORMAN,
INC.; EAGLE SCHOOL OF HILLIARD OHIO, INC.; POWELL
ENTERPRISES, INC.; PARK ENTERPRISES OF OHIO, LLC;
PARK SCHOOL OF DUBLIN, LLC; FIXARI SCHOOL OF
PICKERINGTON, LLC; FIXARI SCHOOL OF REYNOLDSBURG,
LLC; BURKHOLD ENTERPRISES, LLC; PARK SCHOOL OF
GAHANNA, LLC; DIMUZIO-SPERANZA ENTERPRISES, INC.;
CHAMBERS HOLDINGS, INC.,
Plaintiffs-Appellants,
v.
PHILADELPHIA INDEMNITY INSURANCE COMPANY,
Defendant-Appellee.
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No. 21-3245
Appeal from the United States District Court for the Southern District of Ohio at Columbus.
No. 2:20-cv-02035—Sarah Daggett Morrison, District Judge.
Decided and Filed: November 5, 2021
Before: SILER, KETHLEDGE, and BUSH, Circuit Judges.
_________________
COUNSEL
ON BRIEF: Charles H. Cooper, Jr., Sean R. Alto, COOPER & ELLIOTT, Columbus, Ohio, for
Appellants. Stephen E. Goldman, Wystan M. Ackerman, ROBINSON & COLE LLP, Hartford,
Connecticut, Richard M. Garner, COLLINS, ROCHE, UTLEY & GARNER, LLC, Dublin,
Ohio, for Appellee. Christopher E. Kozak, PLEWS SHADLEY RACHER & BRAUN LLP,
Indianapolis, Indiana, Timothy J. Fitzgerald, KOEHLER FITZGERALD LLP, Cleveland, Ohio,
Laura A. Foggan, CROWELL & MORING LLP, Washington, D.C., for Amici Curiae.
>

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No. 21-3245 Dakota Girls, LLC, et al. v. Philadelphia Indemnity Ins. Co. Page 2
_________________
OPINION
_________________
BUSH, Circuit Judge. To combat the spread of COVID-19, the Ohio government
ordered child-care programs in the state to shut down for around two months beginning in March
2020. As a result, Dakota Girls, LLC and its sixteen co-appellants (collectively, “Dakota Girls”)
could not use their facilities for their intended purpose—as private preschools. The consequent
lost profits gave rise to claims against their insurer, the Philadelphia Indemnity Insurance
Company (“Philadelphia”). Dakota Girls argued that the preschools’ identically worded policies
contained four provisions—concerning (1) business and personal property, (2) business income,
(3) civil-authority orders, and (4) communicable disease and water-borne pathogens—that
provided coverage. Philadelphia disagreed, however, and denied the claims, so Dakota Girls
filed suit. It sought damages for breach of contract and the insurer’s alleged bad faith. Yet the
district court sided with Philadelphia and granted its motion to dismiss. Dakota Girls then took
the present appeal. Soon after, we issued a decision squarely foreclosing coverage under the first
three of the aforementioned provisions, a point Dakota Girls now concedes. See Santo’s Italian
Café v. Acuity Ins. Co., 15 F.4th 398 (6th Cir. 2021). It thus confines this appeal to the fourth
provision, concerning communicable disease and water-borne pathogens. But Dakota Girls’
arguments in favor of coverage fail under the plain language of the policies. So we affirm.
I.
In its complaint, Dakota Girls invoked four coverage provisions to argue that Ohio’s
shutdown order caused the preschools to suffer covered losses. First was their building-and-
personal-property coverage, which covers “direct physical loss of or damage to Covered
Property.” Dakota Girls argued that “direct physical loss” is not restricted to mere dispossession,
but also includes loss of use that resulted from the shutdown order. It also theorized that
COVID-19 was itself “damaging surfaces” within the preschools’ properties. The second
provision was the business-income coverage, which covers income lost from a “‘suspension’ of
‘operations’ during the ‘period of restoration’ caused by [the] direct physical loss . . . or
damage.” Third was the civil-authority coverage. Unlike the first two provisions, it covers the

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No. 21-3245 Dakota Girls, LLC, et al. v. Philadelphia Indemnity Ins. Co. Page 3
income lost and expenses that result from a government order prohibiting access to covered
property due to damage at some other location. And last was the communicable-disease and
water-borne-pathogen provision, which covers the income lost and expenses that result from a
shutdown order in response to “an actual illness at the insured premises.” Though Dakota Girls
could not confirm that a COVID-positive individual was ever at the preschools, it at least alleged
that people with symptoms “consistent with” the disease had been there.
Those arguments, however, failed to persuade the district court. While it acknowledged
that COVID “and the Closure Orders have had a devastating impact on many businesses,” the
district court nonetheless held that “Plaintiffs cannot plausibly allege that this impact is covered
under the Policies as written.” That was so because none of the provisions—at least as the
district court understood them—covered Dakota Girls’ theories of harm. Without a material
change in the property’s condition, there could not have been “damage.” Without dispossession
or the property’s destruction, there could not have been “loss.” And without proof that someone
with COVID was ever on the premises, there could not have been an “actual illness” at the
preschools. (The district court also declined to reach the import of a “virus exclusion” found in
seven of the policies because it held that those policies did not provide coverage in the first
place.) The district court thus granted Philadelphia’s motion to dismiss. On appeal, Dakota
Girls argues that the district court misread the policies, misunderstood Ohio law, and erroneously
denied coverage.
II.
There are two general issues here to which a standard of review is relevant: whether the
district court’s interpretation of the insurance policies was correct and whether the district court
properly granted Philadelphia’s motion to dismiss based on that interpretation. We review the
first issue de novo and in accordance with the substantive law of Ohio, since this is a diversity
case. See Yellowbook Inc. v. Brandeberry, 708 F.3d 837, 844 (6th Cir. 2013). We likewise
review the second, procedural issue—whether Dakota Girls plausibly pleaded its entitlement to
relief under that contractual interpretation—de novo. See SFS Check, LLC v. First Bank of Del.,
774 F.3d 351, 355 (6th Cir. 2014). Thus, as did the district court, we ask whether Dakota Girls’
complaint “contain[s] sufficient factual matter, accepted as true, to ‘state a claim to relief that is

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No. 21-3245 Dakota Girls, LLC, et al. v. Philadelphia Indemnity Ins. Co. Page 4
plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2009)). In so doing, we disregard bare legal conclusions and
“naked assertion[s],” affording the presumption of truth only to genuine factual allegations. Id.
(quoting Twombly, 550 U.S. at 557). In other words, we need not “accept as true a legal
conclusion.” Id. Nor should we credit a “[t]hreadbare recital of the elements of a cause of
action . . . supported by mere conclusory statements.” Id. (citing Twombly, 550 U.S. at 555).
Ultimately, “only a complaint that states a plausible claim for relief survives a motion to
dismiss.” Id. at 679 (citing Twombly, 550 U.S. at 556).
III.
We begin with Dakota Girls’ claims to coverage under the business-and-personal-
property, business-income, and civil-authority provisions. All of those are triggered by either
“loss of” or “damage to” property—whether to the covered property itself or to other property
around the covered property. At first, the parties sharply contested the meaning of that phrase.
Philadelphia argued that “loss” refers to the complete destruction of property or to the owner’s
dispossession, while “damage” requires some tangible, adverse change in the property’s
condition. Dakota Girls, by contrast, argued that “loss” is sufficiently broad to encompass loss of
use—the inability to use a structure for the desired purpose. It thus contended that the shutdown
order had caused a covered “loss” under the policy. And it likewise suggested that COVID-19,
merely through its supposed presence, was somehow “damaging surfaces” within its properties.1
Ohio law governs our interpretation of “loss” and “damage.” See Santo’s Italian Café,
15 F.4th at 400. As the parties acknowledge, the Ohio Supreme Court has rendered no on-point
decision. But in a similar case—Santo’s Italian Café v. Acuity Insurance Co.—we recently
made an Erie prediction about how it would define those terms. See id. at 404. Relying on
dictionaries, a leading treatise, and Ohio intermediate-appellate-court precedent, we
reasoned that the Ohio Supreme Court likely would not endorse Dakota Girls’ interpretation. Id.
1Even if Dakota Girls had properly pleaded this allegation, its “damage” claim would fail under our
precedent for the reasons that we explain above. But we pause here to note the contradiction in Dakota Girls’
complaint—that it could not confirm that anyone with COVID was ever on the covered premises, yet that COVID
was also somehow “damaging surfaces” within.

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No. 21-3245 Dakota Girls, LLC, et al. v. Philadelphia Indemnity Ins. Co. Page 5
at 402–04. To the contrary, we held that it would require either destruction of the property or the
owner’s dispossession to show “loss” and a direct physical alteration of the property to show
“damage.” Id. at 404. The policy language thus excludes from coverage the mere economic
injury and loss of use that result from a shutdown order. Id. at 402. In short, as we explained,
“[a] loss of use simply is not the same as a physical loss.” Id.
Dakota Girls concedes that Santo’s is “controlling authority” and resolves all its claims
other than those under the communicable-disease provision. Indeed, Dakota Girls did not suffer
dispossession or the destruction of its property, nor did it plead that COVID-19 had materially
altered the facilities’ condition. Under our circuit’s view of Ohio law, then, the preschools
cannot establish the “loss” or “damage” required to trigger the first three coverages. So, as to
those coverages, we affirm the district court’s grant of Philadelphia’s motion to dismiss.
IV.
We turn next to Dakota Girls’ bid for coverage under the communicable-disease and
water-borne-pathogen provision. It covers the losses that result when the government orders a
shutdown of business operations “due directly to an outbreak of a communicable disease or a
water-borne pathogen that causes an actual illness at the described premises[.]” Though
everyone agrees that COVID-19 is a “communicable disease,”2 this coverage still presents two
interpretive issues. First, is the endorsement triggered simply when there is a shutdown order in
response to a communicable disease found somewhere? Or does it require a shutdown order in
response to a communicable disease that caused an “actual illness” at the premises? Dakota
Girls argues for the former, which would significantly expand coverage, while Philadelphia says
it must be the latter. There is no on-point decision from the Ohio Supreme Court here either, so
once again we will predict how it would likely settle that dispute. Second, based on our
prediction of Ohio law, did Dakota Girls plausibly plead that Ohio’s statewide shutdown order
resulted from an “actual” COVID-19 illness at its premises? We take those questions in turn.
2Indeed, Philadelphia conceded that COVID is a “communicable disease” under the policy.

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No. 21-3245 Dakota Girls, LLC, et al. v. Philadelphia Indemnity Ins. Co. Page 6
A. The Communicable-Disease and Water-Borne-Pathogen Provision
According to Dakota Girls, the communicable-disease and water-borne-pathogen
provision has two distinct triggers that differ radically in their scope. On one hand, coverage
kicks in when there is a shutdown order “due directly to an outbreak of a communicable
disease.” That reading would cover any communicable-disease-related shutdown order that
affects the insured premises, no matter whether an infected person was ever present. On the
other hand, Dakota Girls says, coverage starts when there is a shutdown order “due directly to an
outbreak of . . . a water-borne pathogen that causes an actual illness at the insured premises.”
So, unlike the expansive view of the “communicable disease” trigger, the “water-borne
pathogen” trigger trips only when there is an “actual illness” from a “water-borne pathogen” at
the premises. Dakota Girls claims that this delinking of “communicable disease” and “actual
illness” flows from the “fundamental rules of grammar.”
Though Dakota Girls never frames it in these terms, its point is really about the
applicability of the last-antecedent rule—the presumption that “qualifying words and
phrases . . . refer solely to the last antecedent.”3 Wohl v. Swinney, 113 Ohio St. 3d 277, 279, 888
N.E.2d 1062, 1065 (Ohio 2008). Here, the “qualifying phrase” would be “that causes an
actual illness at the insured premises,” while the last antecedent is “water-borne pathogen.” The
last-antecedent rule thus seems to support Dakota Girls’ reading. Yet despite that presumption’s
superficial relevance to this dispute, a couple of important caveats reveal why it cannot carry the
day.
First, the presumption falls away when the modifying terms follow a “concise and
‘integrated’ clause.” Cyan, Inc. v. Beaver Cty. Emp. Ret. Fund, 138 S. Ct. 1061, 1077 (2018);
Jama v. Immigration & Customs Enf’t, 543 U.S. 335, 344 n.4 (2005); see also Averback v.
Montrose Ford, Inc., 120 N.E.3d 125, 133 (Ohio Ct. App. 2019) (“[A]n antecedent can be a
word, phrase, or clause.”) (emphasis added). For instance, consider this expression: “receives,
possesses, or transports in commerce.” The modifying phrase there—“in commerce”—is
properly read to modify not just the literal last antecedent—“transports”—but all terms in the
3Philadelphia, by contrast, correctly recognizes the canon’s relevance.

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No. 21-3245 Dakota Girls, LLC, et al. v. Philadelphia Indemnity Ins. Co. Page 7
integrated list—“receives, possesses, or transports.” Jama, 543 U.S. at 344 n.4. Second, and
relatedly, the presumption does not apply when surrounding context suggests a “contrary intent.”
Wohl, 888 N.E.2d at 1065 (“[I]f there is contrary evidence that demonstrates that a qualifying
phrase was intended to apply to more than the term immediately preceding it, we will not apply
the last-antecedent rule so as to contravene that intent. Before applying the last-antecedent rule,
we must therefore examine the contract as a whole to determine whether any contrary intent
appears.”).
Each of those caveats defeats Dakota Girls’ argument. “[C]ommunicable disease or a
water-borne pathogen” is a “concise and ‘integrated’” phrase that simply lists two examples of
the same phenomenon—disease. See Cyan, Inc., 138 S. Ct. at 1077 (declining to apply the last-
antecedent rule when the entire phrase “referr[ed] to a single thing”). The actual phrase is thus
distinct from some hypothetical list (say, a shutdown order due to “a tornado, armed uprising, or
water-borne pathogen that causes actual illness”) where the list’s terms lack a conceptual
relationship. And the policy’s surrounding text and context likewise refute the claim that we
should sever “communicable disease” from “actual illness.” Dakota Girls never explains, much
less convincingly so, why the drafters would have made one coverage trigger super-broad and
the other super-narrow. Moreover, the relevant “period of restoration” provision explains that
coverage kicks in “24 hours after the jurisdictional Board of Health closes your ‘operations’ and
your premises are evacuated due to illness caused by an outbreak of a ‘communicable disease,’
or a ‘water-borne pathogen.’” That provision reflects that the illness must be both from a
communicable disease and at the premises to have triggered the coverage. Reading the
communicable-disease coverage to not require an actual illness at the premises, therefore, would
engender serious inconsistency within the policy. So Philadelphia is correct that Dakota Girls
needed to plausibly plead that there was an “actual illness” at the premises from the
“communicable disease,” COVID-19.
B. Application of Communicable-Disease and Water-Borne-Pathogen Provision to
Facts Plausibly Pleaded in the Complaint
Under this correct understanding of the policy—that the shutdown order had to be “due
directly to an outbreak of a communicable disease . . . that causes an actual illness at the insured

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No. 21-3245 Dakota Girls, LLC, et al. v. Philadelphia Indemnity Ins. Co. Page 8
premises”—Dakota Girls’ complaint fails for two reasons. First, it did not plausibly plead that
there was an “actual illness” from COVID-19 at the covered facilities. Second, even if it had
met that burden, it never plausibly pleaded that the statewide shutdown order was “due directly”
to anything that happened at its “insured premises.” Indeed, there was no allegation that Ohio’s
Director of Health had ever even heard of Dakota Girls or the other preschools in this case.
As to the “actual illness” point, Philadelphia notes that Dakota Girls never alleged that
someone in the preschools actually had COVID-19. Instead, the complaint stated that “[e]ach
school had individuals on their premises with symptoms consistent with COVID-19” and later
conceded that Dakota Girls had no “confirmation” of COVID’s presence. Dakota Girls’ opening
brief defends that concession by claiming that it would have been “impossible” to allege that
someone at the preschools actually had COVID since “widespread testing was” then
“unavailable.” But sick individuals from the preschools still could have received a differential
diagnosis from a physician, even if tests were uncommon. Dakota Girls also could have alleged
on information and belief that the sick individuals on the premises had COVID, and it then could
have bolstered that allegation through discovery. What it could not do, though, is allege only
that individuals had symptoms “consistent with” COVID. As the Supreme Court has explained,
allegations that are “‘merely consistent with’ a defendant’s liability . . . ‘stop[ ] short of the line
between possibility and plausibility of “entitlement to relief.”’” Iqbal, 556 U.S. at 678 (quoting
Twombly, 550 U.S. at 557).
Dakota Girls also never alleged that Ohio’s statewide shutdown order arose “directly” (or
even indirectly) from an illness at the premises. Nor could it have. The Director of Health’s
order was framed in general terms and applied to all “Facilities Providing Child Care Services.”
It was also couched as a prophylactic measure “to avoid an imminent threat with a high
probability of widespread exposure to COVID-19,” not as a response to a specific illness
discovered at appellants’ preschools or anywhere else.
Given that analysis, we also reject Dakota Girls’ fallback contention that the
communicable-disease provision is at least “ambiguous” and that we should construe the
“ambiguity” in favor of the policyholder. Dakota Girls misunderstands the relevant principles
of Ohio law. A contract’s failure to define every term does not make it “ambiguous.”

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No. 21-3245 Dakota Girls, LLC, et al. v. Philadelphia Indemnity Ins. Co. Page 9
Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm, 73 Ohio St. 3d 107, 108, 652 N.E.2d 684,
686 (Ohio 1995). Nor is a term ambiguous just because there are “multiple readings.” State v.
Porterfield, 106 Ohio St. 3d 5, 7, 829 N.E.2d 690, 692–93 (Ohio 2005). Instead, we must
determine the terms’ ordinary meaning from other indicia, like the context of the broader policy.
See Cincinnati Ins. Co. v. CPS Holdings Inc., 115 Ohio St. 3d 306, 307, 875 N.E.2d 31, 34 (Ohio
2007) (“We examine the insurance contract as a whole[.]”). We reject ordinary meaning only
when it would create absurdity or when the parties clearly intended some other definition. Id. at
34; see also Sunoco, Inc. (R&M) v. Toledo Edison Co., 129 Ohio St. 3d 397, 403–05, 953 N.E.2d
285, 292–93 (Ohio 2011). And we should declare a policy “ambiguous” only after our
interpretive tools reveal no “definite legal meaning.” Cincinnati Ins. Co., 115 Ohio St. 3d at 308,
875 N.E.2d at 34. Only then may we turn to tools of construction, like the notion that we should
construe ambiguity in favor of policyholders. See Porterfield, 106 Ohio St. 3d at 7, 829 N.E.2d
at 692–93 (“Only when a definitive meaning proves elusive should rules for construing
ambiguous language be employed.”) (emphasis added).
Here, of course, we have no need for an ambiguity tiebreaker. As we have just shown,
the policy has a definite legal meaning—that coverage is triggered only by a shutdown order that
stemmed from an actual illness caused by a communicable disease at the preschools. That
meaning precludes Dakota Girls’ bid for coverage under the communicable-disease provision.4
So we affirm dismissal of the complaint as to this coverage as well.
4We also reject Dakota Girls’ claim that Philadelphia, in effect, waived its current arguments against
communicable-disease coverage by sending the insureds a letter explaining that it would reimburse them “for the
cost of disinfecting the insured premises due to reported symptoms of COVID-19 within the premises.” Even
assuming the letter conflicts with Philadelphia’s current arguments, the letter would not have “waived” those
arguments under Ohio law, since Philadelphia included within it an extensive reservation of rights. See Leader Nat’l
Ins. Co. v. Eaton, 119 Ohio App. 3d 688, 692, 696 N.E.2d 236, 239 (Ohio Ct. App. 1997) (“Payment of a claim of a
person injured by an insured, with knowledge of a potential coverage defense and without any reservation of rights,
waives the defense.”) (emphasis added); see also Nationwide Ins. Co. v. Ali, 178 Ohio App. 3d 17, 25, 896 N.E.2d
742, 748 (Ohio Ct. App. 2008) (“A reservation-of-rights letter from an insurer is a notice that even though the
company is proceeding to handle the claim, certain losses might not be covered by the terms of the policy. By such
a letter, the company preserves or ‘reserves’ its right to deny coverage at a later date based on the terms of the
policy.”) (citing Mastellone v. Lightning Rod Mut. Ins. Co., 175 Ohio App. 3d 23, 884 N.E.2d 1130 (Ohio Ct. App.
2008)).

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No. 21-3245 Dakota Girls, LLC, et al. v. Philadelphia Indemnity Ins. Co. Page 10
V.
Because of our holding above, we need not rule on the effect of the “virus exclusion”
contained in seven of appellants’ policies. That clause purports to remove coverage for “any loss
or damage caused by or resulting from any virus, bacterium or other microorganism that induces
or is capable of inducing physical distress, illness or disease.” The district court declined to
consider the significance of the virus exclusion, reasoning that no coverage existed in the first
place for the clause to exclude. We agree. Because Dakota Girls never established its initial
entitlement to coverage, we need not consider what consequences for that coverage might have
arisen from the virus exclusion.
Our ruling also disposes of Dakota Girls’ claim that Philadelphia’s denial of coverage
was done in bad faith. Even if the denial of coverage had been erroneous, the mere wrongful
denial of a claim is not actionable under Ohio law. Rather, “[a]n insured must prove that the
insurer’s refusal to pay a claim was totally arbitrary and capricious and without reasonable
justification.” Spremulli’s Am. Serv. v. Cincinnati Ins. Co., 91 Ohio App. 3d 317, 322, 632
N.E.2d 599, 601 (Ohio Ct. App. 1992); see also Hoskins v. Aetna Life Ins. Co., 6 Ohio St. 3d
272, 276, 452 N.E.2d 1315, 1320 (Ohio 1983) (explaining that the insured must show “dishonest
purpose, moral obliquity, conscious wrongdoing, breach of a known duty through some ulterior
motive or ill will partaking of the nature of fraud”). Dakota Girls has never shown that it even
had coverage, much less that Philadelphia’s agents knew it had coverage or that coverage was so
obvious it could not have been reasonably denied.
VI.
Like the Santo’s court, we appreciate the “singular challenges” that COVID-19 has
caused for businesses like Dakota Girls. Santo’s Italian Café, 15 F.4th at 407. But those
challenges do not give us license to rewrite the plain terms of an insurance policy to confer upon
the appellants a form of coverage for which they never contracted. We affirm.

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