Property insurance does not cover restaurant ‘physical loss’ due to COVID-19

Based on the judge’s score, restaurants that bring COVID-19 business interruption cases against insurance companies have not beaten so far. (Photo: Mehaniq/Shutterstock)

Courts continue to rule that businesses cannot recoup their financial losses from shutdowns during the pandemic under their professional liability policies.

Judge Britt Grant’s opinion for the United States Court of Appeals for the Eleventh Circuit highlights how badly things have gone for restaurant owners who are suing their insurers for coverage against power outages. activity for closures caused by COVID-19 and emergency response.

“Since the start of the COVID-19 pandemic, businesses across the country have sought to recover losses from their insurers. But a common problem with this approach is that business insurance policies only protect against “direct physical loss or damage” to business property,” Grant said. “Thus far, every federal and state appellate court hearing the matter (including this one) has held that the presence of COVID-19 causes intangible damage to a business’s property, rather only direct physical damage. This means that expenses and losses related to COVID-19 are not covered.

Grant issued the notice, joined by Judge Robert Luck and Senior Judge R. Lanier Anderson III. They ruled Senior Judge Thomas Thrash of the Northern District of Georgia was right to dismiss a lawsuit brought by Henry’s Louisiana Grill, a restaurant 30 miles north of Atlanta on Main Street in Acworth, against its insurer, Allied Insurance Company of America.

Grant said Georgia’s law “leads to the same result” as COVID-19 business interruption cases in other states: no coverage.

“No one disputes” that such claims require “direct physical loss,” Grant said. She dismissed the restaurant’s efforts to portray Gov. Brian Kemp’s public state of emergency in March 2020 as a physical loss.

“Henry’s alleges no actual change in ownership,” Grant said. “Henry’s tries to portray his loss as physical – he says he has ‘lost or otherwise been deprived’ of a ‘physical space’. A restaurant dining room is undoubtedly a physical space. But even though the governor’s order restricted the use of the dining room, it had no physical effect on the property. He did not destroy, ruin, or even damage any part of the restaurant. Because Henry’s cannot identify any “actual change” in his property, he suffered no physical loss.

The restaurant was represented by James John Leonard II of Barnes & Thornburg in Atlanta. He said on Monday he was still considering options and could not comment as it was an “ongoing contentious matter”.

Allied Insurance was championed by Philip Wade Savrin and William Shawn Bingham of Freeman Mathis & Gary in Atlanta. Bingham said Monday they could not comment on the decision.

Henry’s has won support from the Restaurant Law Center, a public policy organization linked to the National Restaurant Association, which bills itself as the world’s largest foodservice trade association.

“These are first impression issues that arise in an unprecedented context,” Gabriel Gillett of Jenner & Block in Chicago said in an amicus brief asking the appeals court to overturn the district judge’s decision.

“For years, restaurants in Georgia and elsewhere have paid substantial premiums for business interruption coverage under “all-risk” commercial property insurance policies. These policies cover all risks, even unforeseen and unprecedented, unless specifically excluded,” Gillett said. “Restaurant owners bought this insurance thinking it would cover lost revenue from ‘physical loss or damage’ to their property, as they understood these simple, ordinary, everyday words. Yet when the Governor of Georgia and others issued executive orders that caused precisely what these restaurant owners believed to be “physical loss or damage” – by detrimentally altering their physical property, requiring physical alterations and materially altering their physical spaces, thereby rendering them non-functional for their intended purposes – insurers denied coverage without lawful justification.

Gillett called the coverage denials “inappropriate” and noted that they come “at a particularly difficult time” for the industry.

“Faced with catastrophic losses, hundreds of restaurants have already closed and countless more will be forced to close permanently,” Gillett said. “As a result, restaurants have turned to the courts to get the coverage they are entitled to.”

Based on Grant’s score, restaurants that carry COVID-19 business interruption cases against insurance carriers beat zero.

“We are not alone in our conclusion,” she said. She added that “the same has been reached by all federal and state appellate courts” who have decided “on the meaning of ‘physical loss or damage to ‘property’ in the ‘context of the COVID-19 pandemic. “.

Unfortunately for restaurants, the policies were not written to anticipate a once-in-a-century pandemic. “Henry’s Louisiana Grill has insured against ‘physical loss or damage to’ its property,” Grant said. “But this does not extend to intangible harm caused by COVID-19 or by a public emergency declaration issued in its wake.”


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