Restaurants ask N.C. Supreme Court to hear business interruption case

The case is one of the rare instances where the policyholder prevailed in a pandemic-related insurance coverage dispute.

A similar petition was filed in the Ohio Supreme Court last year, and that court accepted a certified question to clarify the meaning of direct physical loss. (Credit: J. Albert Diaz/ALM)

The North Carolina Restaurant and Lodging Association (NCRLA), along with 16 restaurants, are asking the North Carolina Supreme Court to bypass the court of appeals and hear an insurer’s appeal of a court decision that found there was coverage for COVID-19 business interruptions in an insurance policy.

North State Deli was the lead plaintiff in a group of 16 restaurants that filed the lawsuit seeking coverage for COVID-19 related business income losses. The case resulted in a rare win for the policyholders. More than 1,600 COVID-19 business interruption insurance coverage lawsuits have been filed. Of the dozens that have been decided, most courts have found that the pandemic did not cause physical loss or damage to insured property.

In the case, the court found that the government orders that closed restaurants to prevent the spread of COVID-19 constituted a direct physical loss that was covered by the insurance policy that Cincinnati Insurance issued to the restaurants. Unlike other COVID-19 litigation, the attorneys here plead that the government orders caused the physical loss of property. Other cases have argued that the novel coronavirus caused damage. The court found that if “physical loss” requires structural alteration to property, then the term “physical damage” would be rendered meaningless. The court also found that nothing in the applicable policies excluded coverage for the losses, as the policies lacked virus exclusions.

Cincinnati appealed the decision, and North State Deli subsequently asked the Supreme Court to sidestep the appellate court and directly take the case. The NCRLA filed an amicus brief in support of that motion.

A similar petition was filed in the Ohio Supreme Court last year, and that court accepted a certified question to clarify the meaning of direct physical loss. However, Ohio Supreme Court has not yet decided whether or not COVID-19 constitutes physical loss or damage. Many other courts have weighed in on this issue, including the Iowa Appeals Court, which recently ruled in favor of an insurer.

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