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Bi-Coastal Blow to Covid Related Restaurant Business Interruption Claims

October 8, 2020

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<p style="text-align: justify;">During the first week of October two separate District Courts, for the Northern District of Georgia and the Central District of California, issued Orders granting the respective motions to dismiss filed by insurer defendants arguing that their policies provide no coverage for a restaurant insureds’ claim for business income coverage alleging losses stemming from Covid-19 closures.</p>
<p style="text-align: justify;">In California, <em><a href="https://www.wcmlaw.com/wp-content/uploads/2020/10/Travelers.pdf">Travelers</a> </em>prevailed on its motion seeking dismissal of the action initiated by its insured, Mark’s Engine Company No. 28 Restaurant in Los Angeles, alleging that Travelers owed coverage under its policy Business Income and Extra Expense for business income losses incurred due to the Covid-19 government mandated closures of all non-essential business in Los Angeles, which of course encompassed the closure of restaurants for everything by take-out and delivery.  Travelers’ Business Income and Extra Expense term covered all losses due to any suspension of business operations due to a  “direct physical loss or direct physical damage” to property.  The policy also included a Virus Exclusion barring coverage for any “loss or damage caused by or resulting from a virus.” Mark’s Engine argued that the mandated closure of the restaurant evidenced physical damage to the property because it evidenced a “dire risk of exposure” to Covid-19 within and upon the restaurant property.</p>
<p style="text-align: justify;">In finding for Travelers that there was no coverage for the claim, the Court held that Plaintiffs’ theory of coverage relied upon an untenable premise that “deprivation of property” without any physical change to the condition of the property, constituted a direct physical loss or damage.  The Court reasoned that while patrons were not permitted within the restaurant, the Insured never lost access to its property.  Further, even if a direct physical loss was adequately alleged, the Virus Exclusion would bar all coverage.</p>
<p style="text-align: justify;">The reasoning employed by the Northern District of Georgia in finding no coverage on behalf of <em><a href="https://www.wcmlaw.com/wp-content/uploads/2020/10/Allied-Insuance.pdf">Allied Insuance</a></em> was parallel to that of the Central District of California.  There, Plaintiff Henry’s, an Atlanta restaurant and private party space, sought coverage under the Allied policy Business Income term which also covered business losses due to suspension of operations caused by direct physical loss or damage.  The Allied policy also had a Virus or Bacteria exclusion.  The Court likewise held that a government-mandated closure of the businesses did not equate to any “physical change at the Plaintiffs’ property”, and ruled that because Plaintiffs had not identified the presence of Covid-19 on the premises, “no physical change as a result of the virus’ presence can be argued.”  Thus, no coverage was due and Allied’s motion to dismiss was granted.</p>
<p style="text-align: justify;">Business Interruption claims have been filed by restaurants in every jurisdiction, and there has been some concern regarding the risk of inconsistent rulings.  These recent cases perhaps forecast a unity in the federal courts’ disposition of such claims in favor of insurance companies.</p>
Thanks to Vivian Turetsky for her contributions to this post.  Any questions, please contact <a href="mailto:gcoats@wcmlaw.com">Georgia Coats</a>.

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