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Judicial and Legislative Updates: Business Interruption Coverage for First-Party Losses Caused by the Coronavirus (COVID-19) Pandemic

April 6, 2020


In my last blog on this subject, I discussed some of the first-party insurance issues for recovering losses caused by COVID-19. Since that time, there has been significant activity on the judicial and legislative front.

There have been two cases filed by high profile insureds seeking coverage for COVID-19 losses. The first case, Cajun Conti, LLC et al v. Certain Underwriters at Lloyd’s London, (Civil District Court for the Parish of Orleans, State of Louisiana), was brought by the famous French Quarter restaurant Oceana Grill. Because of closure orders, the restaurant, which is usually open every day of the year from 8 am to 1 am, must reduce its seating capacity by 50%, which in this case is 250 seats, and close by 9 pm. Plaintiffs are seeking a declaratory judgment under an “all risk” policy.

Plaintiffs argue that the loss of use of the restaurant is a physical loss and that the virus causes physical harm to property by infecting materials it comes in contact with and staying on them for up to 28 days. The plaintiffs also argue that since the policy is an “all risk” policy, it should cover losses caused by any risk except risks that are specifically excluded. The plaintiffs argue that losses caused by viruses and pandemics are not excluded. Plaintiffs request a declaratory judgment that policy provides coverage for civil authority shutdowns and for damage caused by contamination.

The second case also involves a famous restaurant, this one Napa Valley’s French Laundry and its sister restaurant, Bouchon Bistro. The case is French Laundry, LP et al v. Hartford Fire Insurance Company, et al (Superior Court for the State of California, County of Napa). Plaintiffs in that case claim that as a result of Napa County’s stay-at-home order, they have been relegated to reduced hours and take-out service only. Plaintiffs’ allege that they have been forced to furlough 300 employees.

Plaintiffs in the French Laundry case also have an “all risk” policy and Business Income and Extra Expense coverage. Plaintiffs allege that policy expressly provides coverage for physical losses or damage caused by viruses and for losses caused when access to the restaurants are denied by civil authority as a result of covered losses to properties in the vicinity. Plaintiffs assert that they have been denied access to the restaurants and that the virus is causing physical losses and damage to insured properties as well as surrounding properties. Plaintiffs request a declaratory judgment that the policy provides business income coverage for the closures.

Both cases appear on course to test the parameters of the concept of loss of use or functional impairment as “direct physical loss or damage.”

On the legislative front, Massachusetts has joined Ohio and New Jersey in proposing legislation prohibiting insurers from denying business interruption claims for losses caused by COVID-19 to Massachusetts insureds with fewer than 150 employees. The Massachusetts bill is on an expedited track.

The insurance industry is pushing back. It argues that after SARS, the industry took steps to explicitly exclude losses caused by viruses. The effectiveness of those steps will be an issue if the proposed legislation is enacted.

Montgomery McCracken attorneys are available to assist clients with numerous issues related to COVID-19. Visit the firm’s Coronavirus (COVID-19) Resource Center for more information and updates on this constantly evolving situation.