Hunton Insurance Recovery Blog

In a recent opinion, the 8th Circuit rejected an insurer’s attempt to expand insurer victories in a COVID-19 context to other more traditional claims of property damage. Reaffirming long standing principles, the court held soot and water damage associated with a fire constituted “direct physical loss or damage” under a commercial property insurance policy.

The policyholder, Maxus Metropolitan, sued their insurer, Travelers, which had refused to reimburse Maxus for remediation costs associated with a fire at their building. The dispute arose after one of six buildings in a complex owned by Maxus caught fire. Travelers covered part of the damage for the building that caught fire. However, seven months after the fire, Maxus learned of soot and water damage throughout the other five buildings, some of which were under construction and some that had residents. The commercial property policy Travelers issued to Maxus covered up to $35 million in “direct physical loss…or damage.” Travelers refused to reimburse for the remediation and in response Maxus sued Travelers for breach of contract and vexatious refusal to pay in Missouri.

In the lower court, Travelers argued, in part, that they were not required to pay Maxus because the presence of microscopic soot was not enough to be considered “direct physical loss or damage.” They relied on a recent insurer-friendly Missouri Court of Appeals case, BBX Cap. Corp. v. Scottsdale Ins. Co.,^[1] that interpreted the same policy language to find that business interruption expenses caused by COVID-19 were not covered because COVID-19 does not cause a “physical alteration or tangible impact to” the insured property.

Travelers argued that microscopic carcinogenic soot was not perceptible and tangible, as discussed in BBX, so there was no direct physical loss. The court responded that this goes too far. The court analogized the presence of microscopic soot to asbestos and found it materially different from the presence of a virus. Part of the reason was because the soot remains tangible on surfaces and is permanent absent some intervention, unlike the COVID-19 virus.

This opinion marks a limiting of the scope of the COVID-19 opinions that narrowed definitions for coverage under property insurance policies. The BBX court interpreted direct physical loss in a manner that limited coverage and included broad statements which insurers argue significantly narrow coverage under property policies with similar language. The Maxus case tested how far the courts were willing to go in accepting insurers’ invitation. In most of the buildings at issue in the Maxus case, the soot was not visible, and Travelers argued that fell within BBX because there was arguably no “physical alteration or tangible impact” on the covered property.

The 8^th Circuit’s observation that physical presence can still be microscopic and need not be perceptible to the naked eye reinforces the availability of coverage for policyholders, even in light of the unfavorable COVID-19 opinions. The case provides a sound position for future policyholders seeking coverage under similar policy language. It effectively reinforces the general rule that coverage for property damage or loss is broad, and the COVID-19 cases are sui generis.

In summary, the 8th Circuit’s decision in favor of Maxus Metropolitan signals a significant rebuke to insurers attempting to expand the reach of COVID-19 coverage cases. By recognizing that microscopic contaminants like soot can constitute tangible damage, the court has underscored the broad scope of coverage available to policyholders, countering the narrowing effect of previous COVID-19-related rulings. This precedent provides reassurance to policyholders seeking recovery for less visible forms of property damage and underscores the importance of monitoring future developments. Insureds should consult recent cases like Maxus when advocating for coverage for claims involving non-visible, yet physically present, contaminants.

^[1] 713 S.W.3d 590, 595, 603 (Mo. Ct. App. 2025).