In a case that has garnered national attention, a Louisiana appeals court this week ruled that a French Quarter restaurant’s insurance policy should cover losses stemming from COVID-19 shutdowns and restrictions that hurt its business.
The case, which was initially filed in March 2020, was the first in the country to seek business interruption insurance payments to cover losses incurred when state and local authorities restricted travel, dining and other in-person gatherings in an effort to control the pandemic.
Restaurants and bars were among the hardest hit by the pandemic restrictions that arrived in March 2020, when Gov. John Bel Edwards, Mayor LaToya Cantrell and public officials across the US shuttered businesses in an effort to slow COVID’s spread.
A question of coverage
The ruling on Wednesday by Louisiana’s 4th Circuit Court of Appeal said that a lower court erred in February when it denied the owner of Oceana Grill’s request for declaratory relief, which would have allowed it to seek damages from its insurer, a Lloyd’s of London underwriting syndicate .
The February ruling by Judge Paulette Irons in the Orleans Parish Civil District Court was given without offering a written opinion after a non-jury bench trial that last about two months.
Oceana Grill, located on Conti Street, is the largest in a group of five restaurants owned by Mo Bader and other members of his family. The restaurant’s lawyers have argued that its premium payment of $91,000 a year for an “all risks commercial insurance policy” entitled it to payments that would make it whole for the business interruptions suffered during the government-mandated restrictions.
The restaurant had employed 200 before the pandemic and was able to seat 500 customers. The court filings detailed how the restaurant had to close completely for two months from March through May in 2020 and then was only able to accommodate between 60% and 70% of its usual capacity for months while the waves of COVID-19 kept restrictions in place. . It has not specified in the trials how much it lost; rather, it is trying initially to establish that Lloyds is liable.
A claim for damages can follow
“This lawsuit was all about coverage,” said Daniel Davillier, an attorney representing Oceana Grill’s owner. “If you don’t have coverage you can’t claim any damages. There are a lot of people out there who suffered losses during the pandemic who’ve been waiting to see how this turns out.”
New York-based attorney Marshall Gilinsky of Anderson Kill, a specialist in insurance disputes who was not involved in the case, said the Oceana Grill decision is the first to determine that the COVID-19 virus constituted a “physical disruption” to business and was covered by policies that didn’t explicitly exclude virus coverage.
Many of the business interruption cases brought so far have resulted in pre-trial rulings, the bulk of which have been in favor of insurers. As Gilinsky notes, most insurance policies — more than 80% — specifically exclude viruses from their coverage. For the policies that do not exclude virus coverage, the key question for state courts has been whether COVID-19 caused “physical damage” that led to disruptions.
“That’s the key question and the action in these cases is all in the state high courts,” Gilinsky said.
The damage can be invisible
The appeals court in their majority decision on Wednesday focused on the wording in the policy which said it would cover “direct physical loss of or damage to” the insured property.
The court found that the wording was open to interpretation and in many previous cases dating back decades courts had determined that “physical damage” did not have to be obvious and observable, such as a collapsed wall. Judge Terri Love, writing the majority opinion, ruled that damage could also be invisible and include asbestos, a chemical leak, or mold — COVID-19 fell into this latter category, the majority of the appeals court judges found.
The two dissenting judges, Roland Belsome and Lynn Luker, held to a strict interpretation of “physical damage” and said the virus could be easily mitigated by cleaning.
John Houghtaling, one of the lawyers representing Oceana Grill, argued that “smoking gun” evidence in the case showing that the Lloyds underwriters were fully aware that they were required to specifically exclude a virus or be liable for business interruption coverage was decisive. I have pointed to testimony the underwriters had given to Louisiana Insurance Commissioner James Donelon in 2006 acknowledging that liability.
Ginger Dodd, an attorney at Phelps, one of the firms representing the Lloyds syndicate, said they are considering options, including an appeal.
“We are disappointed in the Court’s decision,” she said. “Although the trial court decision was reversed, two of the five justices voted to affirm the trial court’s ruling, which is consistent with the ten federal circuit courts of appeal and every other state appellate court which has addressed the issue.”