In response to denied business interruption insurance claims, thousands of small business owners have turned to legal action against their insurers—with mixed results. But one case, filed by a Louisiana restaurant group, has recently survived a summary judgment motion filed by Lloyd’s of London. The ruling indicates that the case, Cajun Conti LLC et al. v. Certain Underwriters at Lloyd’s, London et al., No. 2020-02558 (La. Dist. Ct., Orleans Parish Mar. 16, 2020), will go to trial, making it the first business interruption insurance claim case to be tried in the United States in connection to the COVID-19 pandemic.
The Rise of Business Interruption Insurance Litigation
The economic consequences of the COVID-19 pandemic on small businesses have been dire. As early as March, mass layoffs and closures due to decreases in revenue and state-mandated shutdowns had adversely impacted thousands of businesses. Almost immediately, businesses across the country filed claims with their insurance carriers seeking protection and reimbursement from COVID-19-related losses. These business interruption claims—typically, claims that result from physical damage done to the business property—presented an unprecedented question as to whether global pandemics fall under such coverage. Some insurers, like The Hartford Insurance and Travelers released statements explicitly denying coverage for losses stemming from pandemics and viruses. As a result, a number of businesses filed lawsuits against their carriers, with over 1,250 filings as of October 2020. The viability of these lawsuits has been varied, with some being dismissed on motion by the defendant carriers. Conti v. Certain Underwriters, however, is the first to make it to trial.
Conti Case Background
The plaintiffs in Cajun Conti own a 500-seat New Orleans restaurant, Oceana Grill, centrally located in the city’s French Quarter. Back in March, Louisiana governor, John B. Edwards issued an order banning gatherings of 250 people or more, and New Orleans mayor, LaToya Cantrell ordered restaurants to operate at 50% capacity and cease service by 9 pm. Just days later, Oceana Grill’s owners filed a suit seeking a declaratory judgment that its insurer should cover losses related to their business’s interruptions. The complaint also sued the state of Louisiana and its governor for a ruling as to whether the ban on gathering of over 250 people applied to restaurants.
According to the complaint, the plaintiffs carried an all risk commercial general liability policy with Lloyd’s of London, meaning that the policy shall cover losses from all risks unless “clearly and specifically excluded.” The complaint significantly alleges that this policy “does not provide any exclusion due to losses, business or property, from a virus or global pandemic.” However, based on information or belief, the plaintiffs alleged that Lloyd’s had accepted their “policy premiums with no intention of providing coverage due to direct physical loss and/or from a civil authority shutdown due to a global pandemic virus. Plaintiffs argued that the virus’s physical infection and spread onto surfaces would constitute a “direct physical loss.”
Although they had not yet been denied a claim, the plaintiffs sought a declaratory judgment that their commercial policy cover economic losses from sales and the cost of cleaning and any loss of income resulting from future civil authority shutdowns.
Summary Judgment Denied
In a ruling denying Lloyd’s motion for summary judgment, Judge Paulette R. Irons found that the question of whether COVID-19 constitutes direct physical loss or damage is a case of first impression and that there is a genuine issue of material fact as to whether policy interests necessitate a more liberal reading of prior case law. If so, there is a question of how COVID-19 impacts the environment and whether the plaintiffs’ suspension of their restaurant’s operations was caused by physical loss or damage from the virus. Although the Lloyd’s argued that any physical harm from COVID-19 could “be abated with simple household cleaning supplies,” the court was not swayed in light of contrary studies presented by the plaintiffs.
As to the Civil Authority Endorsements, the court also found that whether COVID-19 damages to property at another location within one mile of the restaurant is a Covered Cause of Loss is a genuine issue of material fact, as the plaintiffs allege damages at locations surrounding its premises, including a hospital. The court further held that whether the Orders prohibited access to the plaintiffs’ premises is a genuine issue of material fact, since the restaurant had to “drastically change its operations to exclude sit-down patrons, which was previously the heart of its business, because the Order restricted their presence in the building.”
Since the summary judgment motion was denied and a trial date set, the Lloyd’s underwriters have claimed in a motion to the court that the owner of Oceana Grill had previously contacted the New Orleans mayor prior to the shutdown order to ensure that the order included language that the virus causes physical damage to property. The motion was denied and stricken from the record after plaintiffs presented evidence that the restaurant owner was not trying to influence the mayor’s order, but rather, was alerting the government to insurers’ plans to escape obligations.
Future of COVID-19 Business Interruption Claims
Although the Cajun Conti case seems promising for businesses, not all are as successful. Whether an insurance policy includes a virus exclusion seems to be the strongest indicator of lawsuit viability. In cases where the businesses purchased policies that did not specify a virus exclusion clause, the plaintiffs have typically prevailed against insurer motions to dismiss more than half of the time. Contrarily, insurers with policies that contain exclusions for virus-related losses are oftentimes winning motions to dismiss (state and federal courts have granted 31 out of 38 motions to dismiss in these cases). Though over half of the over 1,250 business interruption suits have been in cases with no explicit (or not coded) virus exclusion policy, almost 500 policies at issue contain a clause that explicitly excludes viruses from coverage, with an additional 121 cases containing “hidden” exclusion clauses (i.e., exclusions for pollution and contamination damages). In the latter cases, courts have been clear that no coverage should be expected when the virus exclusion policy is “clear and unambiguous.” However, like all legal matters surrounding COVID-19, the overall outcome and legal precedent are still yet to be seen.
