Property insurance does not cover restaurants' 'physical loss' from COVID-19
Another judicial opinion underscores the dire record of business owners seeking coverage for losses attributed to COVID-19.
The courts are continuing to rule that businesses cannot recover their financial losses due to closures during the pandemic under their business liability policies.
Judge Britt Grant’s opinion for the U.S. Court of Appeals for the Eleventh Circuit highlights how badly things have gone for restaurant owners suing their insurers seeking business interruption coverage for shutdowns caused by COVID-19 and the emergency response.
“Since the beginning of the COVID-19 pandemic, businesses across the country have sought to recoup losses from their insurers. But a common problem with that approach has been that the businesses’ insurance policies protect against only ‘direct physical loss of or damage to’ business property,” Grant said. “So far, every federal and state appellate court to consider the issue (including this one) has held that the presence of COVID-19 causes a business’s property intangible harm, rather than direct physical harm. That means COVID-19-related expenses and losses are not covered.”
Grant issued the opinion, 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 filed 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 law “leads to the same result” as COVID-19 business interruption cases in other states: no coverage.
“No one disputes” that such claims require a “direct physical loss,” Grant said. She dismissed the restaurant’s effort to portray Gov. Brian Kemp’s March 2020 public state of emergency order as a physical loss.
“Henry’s alleges no actual change to its property,” Grant said. “Henry’s tries to spin its loss as physical — it says it ‘lost, or was otherwise deprived of,’ a ‘physical space.’ A restaurant’s dining room, no doubt, is a physical space. But even if the governor’s order restricted the dining room’s use, that had no physical effect on the property. It did not destroy, ruin or even damage any part of the restaurant. Because Henry’s cannot identify any ‘actual change’ to its property, it suffered no physical loss.”
The restaurant was represented by James John Leonard II of Barnes & Thornburg in Atlanta. He said Monday he was still considering options and could not comment because this is an “ongoing litigated matter.”
Allied Insurance was defended by Philip Wade Savrin and William Shawn Bingham of Freeman Mathis & Gary in Atlanta. Bingham said Monday they could not comment on the ruling.
Henry’s drew support from Restaurant Law Center, a public policy organization connected to the National Restaurant Association, which calls itself the world’s largest food service trade association.
“These are issues of first impression arising in an unprecedented context,” Gabriel Gillett of Jenner & Block in Chicago said in an amicus brief asking the appeals court to reverse 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 any and all risks, even unforeseen and unprecedented ones, unless specifically excluded,” Gillett said. “Restaurant owners bought this insurance believing that it would cover income lost as a result of ‘physical loss or damage’ to their property, as they understood those plain, ordinary, everyday words to mean. 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 changes to it, and materially impairing their physical spaces, thereby rendering them nonfunctional for their intended purposes—insurers denied coverage without legitimate justification.”
Gillett called the coverage denials “improper” and noted they come “at a particularly challenging time” for the industry.
“Facing catastrophic losses, hundreds of restaurants have already closed and countless more will be forced to close—permanently,” Gillett said. “Accordingly, restaurants have turned to the courts to obtain the coverage they are entitled to receive.”
Based on Grant’s scorekeeping, restaurants bringing COVID-19 business interruption cases against insurance companies are batting zero.
“We are not alone in our conclusion,” she said. She added “the same one has been reached by every federal and state appellate court” that has decided “the meaning of ‘physical loss of or damage to’ property” within the “context of the COVID-19 pandemic.”
Unfortunately for the restaurants, the policies were not written to forecast a once-in-a-century pandemic. “Henry’s Louisiana Grill insured against the ‘physical loss of or damage to’ its property,” Grant said. “But that does not extend to the intangible harm caused by COVID-19 or by a declaration of public emergency issued in its wake.”
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