The fight over whether soot and smoke constitute “direct physical loss” isn’t over. In fact, it’s about to get bigger.
I previously wrote about a Missouri federal court verdict where a jury found Travelers guilty of bad faith and hit the insurer with a $27 million judgment over smoke, soot, and ash damage, in Travelers Guilty of Bad Faith and Loses $27 Million Verdict Over Smoke, Soot, and Ash Dispute. The policyholder then won on appeal, as I noted in Smoke and Soot Are Covered Causes of Loss, and Smoke, Soot, and Ash Testing Is Important. The case seemed to solidify what many of us who handle property insurance claims have long understood: that smoke and soot are covered causes of loss.
But now, that appellate decision has been vacated. It’s as if it never legally happened. The Eighth Circuit Court of Appeals has granted en banc review, which means every active judge on the court, not just the original three-judge panel, will reconsider the case from scratch.
So, while the original decision favored the policyholder, that opinion no longer has any legal effect. The case is back on appeal.
What Does It Mean When a Case Is “Vacated”?
When an appellate court vacates an opinion, it wipes the decision off the books. The prior ruling can’t be cited as precedent and carries no legal weight. It’s a legal “do-over.” Whatever the three-judge panel said about soot damage, jury instructions, or Travelers’ conduct is now history until the full court reconsiders it.
What Is “En Banc” Review?
“En banc” literally means “on the bench.” Instead of a smaller three-judge panel deciding the case, all eleven active judges of the Eighth Circuit will now hear and decide it together. En banc review is rare. It’s usually reserved for cases involving important or unsettled legal issues, conflicting decisions among panels, or questions of exceptional public importance.
Here, it signals that the Eighth Circuit believes the case raises broader implications, especially after years of post-COVID disputes over what counts as “direct physical loss.” The court is poised to weigh in on whether fire contamination resulting in soot and smoke should be treated legally the same way as the COVID-19 cases. I predicted the insurance industry was not going to stop its attack on “physical loss or damage” when the COVID controversy ended.
The Bigger Picture: Travelers Is Fighting Hard
This case is an example of how far insurers are now willing to go to fight claims they once routinely paid. Before COVID-19 business interruption litigation changed the legal landscape, smoke and soot claims were rarely controversial when found to exist. Coverage was recognized as tangible contamination requiring cleaning and remediation. The most common disputes centered on how to clean and remove the smoke, soot, and ash particulates.
Travelers is battling the heck out of this one. The en banc ruling will likely set a major precedent on how courts going forward interpret physical loss or damage in the context of fire contamination.
The briefing on this case is worthy of follow-up and discussion here. I will do so because the two sides seem diametrically opposed on the facts and law. This was a major commercial fire, and to me it is not surprising that smoke, soot, and ash were found throughout the apartment complex buildings. But Travelers is arguing that the policyholder never proved this.
A vacated opinion doesn’t erase the facts. It just resets the legal scoreboard. The jury found Travelers breached the contract and did so in bad faith. Whether the full appellate court upholds that result or rewrites the rules remains to be seen.
This case is a reminder that, in the world of property insurance law and claims handling, science may change how claims are handled, and insurance law develops with different facts and policy language. Nothing stays the same. If you are a professional in this business, you have to keep up.
Thought for the Day
“Perseverance is not a long race; it is many short races one after another.”
—Walter Elliot