Court of Appeals first to rule in favor of coverage for COVID shutdown


The lawyer who filed the first lawsuit in the United States seeking insurance coverage for a business closed due to coronavirus has won the first victory for an insured in an appeals court of state or federal which has interpreted the meaning of “direct physical loss or damage”.

On June 15, the Louisiana 4th Circuit Court of Appeals reversed a trial court decision that dismissed a lawsuit filed by Cajun Conti, the owner of a 500-seat restaurant in the French Quarter of La New Orleans.

So far, all 77 federal court and 44 state court appellate decisions have found that the coronavirus has not caused tangible damage to property covered by standard commercial property policies. But the Louisiana Court of Appeals ruled in a 3-2 decision that a syndicate at Lloyd’s of London owed cover to Cajun Conti because its policy was ambiguous and should therefore be interpreted in favor of the policyholder.

The plaintiff’s attorney, John W. Houghtaling II, said none of the cases tried so far have been tried. He said he won because he was able to present ‘compelling’ evidence at trial that the Office of Insurance Services was aware that viral contamination could trigger coverage under insurance policies. “all risks” of commercial property. The ISO admitted that when its representatives met with the Louisiana Insurance Commissioner and other insurance regulators across the country in 2006 to seek approval for a virus exclusion in standard form, Houghtaling said.

“I didn’t make this up,” he said. “It came from the mouth of the insurance industry.”

Mark Friedlander, director of communications for the Insurance Information Institute, said Louisiana’s decision was an outlier. “We respect the decision of the appeal panel but disagree with the decision,” Friedlander said in an email. “We are confident that courts across the country will continue to rule in favor of insurers in business interruption cases because there is ‘no physical loss present.’ Insurers have prevailed in these cases because the language of the policy is very clear. Therefore, insurers cannot be held responsible for losses related to the coronavirus.

The attorney who represented Lloyd’s, Allen C. Miller of Phelps Dunbar in New Orleans, said in an email that the dissenting opinion in the case reflects the opinion of every federal and state appellate court that ruled on whether insurance cover is due. for business interruption losses related to COVID-19. He noted that the 5th Circuit Court of Appeals, interpreting Louisiana law, also denied property insurance coverage in a lawsuit filed by Q Clothier and Louisiana Bone.

“The decisions were unanimous, without a single dissent,” he said. “We will pursue all options to respond to what we believe to be an aberrant decision.”

So far, only one appeals court has ruled in favor of a policyholder seeking to cover lost income due to a COVID shutdown. The New York Appellate Division, 1st Department found that coverage was due under a pollution liability policy underwritten by the New York Botanical Garden. This policy did not include the usual language that requires “direct physical loss or damage”.

Cajun Conti owns the Oceana Grille, a restaurant in the heart of the touristy French Quarter that seats 500 people and employed 200 people before Governor John Bel Edwards issued a March 16, 2020 executive order requiring restaurants across the State to close their dining rooms. Oceana reopened at 25% capacity two months later and continued to operate at less than 50% capacity the following year.

The company had paid $91,000 to purchase a commercial property policy without the usual virus exclusion. The general manager testified that he would not have purchased a policy with this exclusion because the restaurant serves raw oysters.

Cajun Conti sued Lloyd’s the same day it closed, seeking a declaratory judgment that the insurer should cover its losses due to the contamination of the premises. Orleans Parish Judge Paulette R. Irons ruled against a motion to dismiss filed by Lloyds, but after a trial court ruled no coverage was due without making any findings written.

The 4th Circuit wrote three opinions; two for the majority and one for the dissent.

Writing for the majority, Chief Justice Terri F. Love, cited testimony from Dr. Lemuel Moye which supported the argument that the coronavirus had physically altered the property.

“The physical presence of COVID-19 significantly diminished the usable space of the property, as tables had to be spaced far apart, and resulted in economic losses due to reduced caller activity,” the report said. ‘opinion. “In other words, the physical presence of infectious virus particles decreased the habitable portion of the insured property and caused a slowdown in business activities.”

Judge Joy Cossich Lobrano agreed, but wrote separately to say the coverage was due under a 2011 appeals court decision, Widder v. unusable.

The two dissenters, in an opinion written by Judge Roland L. Belsome, said the trial court’s decision in favor of Lloyds should have been upheld because there was no physical change to the Cajun Conti property.

Rhonda D. Orin, an insurance recovery attorney for the law firm Anderson Kill in Washington, D.C., said the fact that five appeals court judges wrote three opinions to explain their reasoning demonstrates the ambiguity that Cajun Conti was trying to prove. She said business owners who buy all-risk policies with no virus exclusions expect to be covered in circumstances where they are not permitted to use their property for its intended purpose.

Both Houghtaling and Orin pointed out that most decisions so far have been made in federal court at the summary judgment stage, which means federal judges interpret state laws. Houghtaling said he would not have been able to present evidence that the ISO considered the virus contaminations compensable if his case had not gone to trial.

Lawyers for Marc Fisher LLC, a distributor of designer shoes, have also attempted to submit evidence of ISO’s claims to insurance regulators in a lawsuit seeking more than $100 million in damages and interests. A state court judge dismissed the case after finding no coverage was due due to a virus exclusion.

Still, Orin said ISO’s comments to insurance regulators about the need for a virus exclusion in 2006 provide compelling evidence. “Companies don’t go through the process of writing exclusions and having them approved by all 50 state insurance departments if they don’t need them,” she said.

Orin said she has practiced law long enough to see how tort liability in environmental law has developed. Insurers that excluded pollution coverage won early rounds but then began losing cases.

She said the tide could also turn for business interruption claims related to COVID-19. “I think this thing can turn out on a penny and I think the insurance companies think that too and are worried about it,” she said.

James Sullivan, a policyholder attorney with Calfee Law Firm in Cleveland, Ohio, said the decision demonstrates that business interruption coverage is a matter of state law and should be decided by the courts of state rather than federal courts.

“Although it relies on Louisiana law, which sometimes differs from the laws of other states, this case shares at least two things in common with many other states in the United States,” Sullivan said in an email. . “First, it rests largely on the principle that ambiguous wording in an insurance policy is construed in favor of the insured as a matter of law, and this same principle exists in most US states. Second, this case shares the same key issue as most cases in US state courts, namely how to interpret the phrase “direct physical loss or damage.”

He said it stands to reason that other state high courts might find the language of insurance policies ambiguous.

“Here in Ohio, where ambiguities are construed in favor of policyholders, we continue to wait and see how our Ohio Supreme Court will rule on this matter in an ongoing case,” he said. .

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