On October 6, 2020, U.S. District Judge Thomas Thrash Jr. Georgia's first decision to suspend insurance cuts COVID-19, and found that Governor Brian Kemp's decision on an emergency did not cause "physical loss of" policyholders' closed dining halls. Henry & # 39; s Louisiana Grill, Inc. et al. v. Allied Ins. Co. of Am. No. 1:20-cv-2939-TWT (N.D. Ga. 6 October 2020). The decision takes an unusually narrow view of the phrase "loss of", as it is used in the policy, and consequently reaches a conclusion that is incompatible with how other courts have analyzed the phrase.
In its information on policyholders 'request for dismissal, the parties asked the court to address three issues: (1
Georgia Contract Interpretation Process
Before delving deeper, the court stated one of the three-step process in Georgia is contracting , which is "to determine whether the language of the instrument is clear and unambiguous." (Order, p. 6) (with reference to Am. Empire Surplus Lines Ins. Co. v. Hathaway Dev. Co ., 288 Ga. 749, 750 (2011). Id. The Court did not provide the last two steps in the process, which are:
[Second,] if the agreement is ambiguous in any respect, the court must apply the rules of contract in order to resolve the ambiguity. application of the design rules, the question of what the ambiguous language means and what the parties intended to do must be resolved by a jury.
RLI Ins. Co. v. Highlands on Ponce 280 Ga. App. 798, 800-801 (2006)
Whether the governor's executive order caused "direct physical loss of" covered property
The court began its analysis with the key phrase: "direct physical loss of or damage to" covered property… The insurer considered the phrase to require "some form of physical change "to property. The policyholders claimed that the phrase is satisfied if their property is no longer physically accessible to protectors.
Both parties were cited in AFLAC, Inc. v C hubb & Sons, Inc. 260 Ga. App. 306 (2003). In AFLAC the insured sought coverage for costs related to software updates made to prepare for potential Y2K losses. While acknowledging the general shortcoming in Georgia and the specific difference in the underlying facts, the Court acknowledged that AFLAC provided some relevant terms:
- "[O] r" in this context is a coordinating link "loss" and "damage" so that "direct physical" modifies both "loss" and "damage." Id . at 308 (with reference to the Harbrace College Handbook, (11th Edition)).
- "Direct" means "without interfering with persons, conditions or bodies; immediate." (with reference to The American Heritage Dictionary, (2nd college ed. abridged, Dell, 1985); see also Merriam-Webster.com Dictionary (defines "direct" as "derived directly from a source"). [19659012TheCourtlookedatBlack'sLawDictionaryandMerriam-Websterfordefinitionsofotherpolicyterms:
- "Loss" means "loss or loss of value" (Black & # 39 ;s Law Dictionary) and "the act of losing possession" (Merriam- Webster11 Dictionary).  "Damage" means "loss or damage to person or property" (Black & # 39; s Law Dictionary) and "loss or damage resulting from damage to person, property or reputation" (Merriam-Webster.com Dictionary
AFLAC the court, together with these words, found the phrase "then considering an actual change of the insured property then in a satisfactory condition, caused by an accident or other temporary event directly on the property causing it. To become unsatisfactory. for future use or require repairs to be made to do so. ” AFLAC 260 Ga. App. at 308.
Applying AFLAC policyholders claimed that the governor's executive order caused a physical change that made the once-satisfactory canteens "unsatisfactory." The court considered this argument "curious": "According to the plaintiffs' logic, one minute before the governor issued the order, the dining room was in a state. A minute later, the governor issued the order and the restaurant underwent a direct physical change that left the dining room in another state." Order, pp. 9-10).
The court did not find coverage for three reasons: first, the loss was not "immediate" because the policyholders made the "prudent" choice to close their business.That decision was an intermediate (not immediate) cause of loss different from the order, which did not impose restrictions on operations.
Second, the Court expressed concern that finding a physical loss here would "massively expand" the scope to include "the negative effects of operational changes arising from rules or executive regulations, such as a reduction in the maximum occupancy of space. " Id. on p. 11. [196590 Finally, the Court rejected the policyholders' argument that "loss of" must include loss of use which does not require damage, otherwise "damage to" would be a surplus, which is to the detriment of Georgia law. Given the dictionary and "period of restoration", the court found that "loss of" and "damage to" meant different things, but "loss of" meant "complete destruction" and "damage is any other damage requiring repair." Id. on p. 12. "Loss of" therefore did not include loss of use.
Whether the policyholders claimed alleged coverage under the policy's civil authority provision
The court also found that the claim did not trigger the policy's civil authority coverage for three reasons. First, the order did not prohibit access to the insured property; it only "recommended" citizens to stay at home. Second, the policyholders did not claim that the areas "immediately" surrounding the insured properties were blocked by the order or that these areas had been damaged by COVID-19. And third, the policyholders did not claim that the order's access restrictions stemmed from COVID-19 or were necessary to give the civilian authority access to the area.
Whether the policy exclusion of "Viruses or bacteria" excludes coverage for policyholders' claims
The court declined to address the policy "exclusion of viruses or bacteria" and found that policyholders had not relied on sufficient facts to support a claim for coverage .
After granting the insurer's allied request for dismissal, the court decided not to refer the matter to the Supreme Court of Georgia, as the unambiguous language of the policy did not create significant doubts as to state law.
While insurers will trumpet Henrys as a victory, as so many of these cases are decided in favor of insurers, Henrys provides policyholders with a roadmap for coverage. It is important to assert the actual presence of the virus on insured property. The policyholders did not do this, probably in an attempt to appeal for virus exclusion. But if they had done so, the court assumed that this case could be more in line with the cases that found physical loss. See e.g. Studio 417, Inc. vs. Cincinnati Ins. Co ., Civ. A. No. 20-cv-03127, 2020 WL 4692385 (WD Mo. 12 August 2020).
However, the Court went further than most rulings to define "loss of" to mean "total destruction" of property, although one of the definitions of "loss" was "loss of value", which was certainly true for policyholders. dining rooms after they have been rendered unusable by the governor's executive order. This finding is also out of step with courts that have applied AFLAC. For example, a federal court in New Jersey found that an ammonia emission in a manufacturing plant constituted "direct physical loss of or damage to" the plant because it "physically rendered the plant unusable for a period of time." See e.g. Gregory Packaging, Inc. v. Travelers Prop. & Cas. Co. of Am. 2014 WL 6675934, at * 7 (D. N.J. November 25, 2014). Gregory Packaging court, which also found that New Jersey law was substantially identical to Georgia law, found this result consistent with AFLACs 's assumption that "loss of" includes a permit to change a facility from "a satisfactory condition for human occupancy" to an "unsatisfactory" condition requiring decontamination.
Other courts, with reference to Gregory Packaging have found that COVID – 19 can cause physical loss under commercial real estate policy, providing further support to the policyholder's reasonable interpretation of Georgia law. Blue Springs Dental Care, LLC, et al. v. Owner Ins. Co. No. CV-00383 (W.D. Mon., September 21, 2020); Optical Services USA / JC1 vs. Franklin Mutual Ins. Co. No. BER-L-3681-20 (N.J. Super. Ct. Bergen Cty. 13 August 2020); K.C. Hopps, Ltd. against Cincinnati Ins. Co. 20-cv-00437 (W.D. Mon., August 12, 2020); Studio 417, Inc., et al. v. Cincinnati Ins. Co. No. 20-cv-03127 (WD Mon., August 12, 2020).
Finally, although the Court acknowledged that the Governor's executive order was issued to deal with the "already existing threat" of COVID, the Court did not examine whether the threat of COVID-19 could in itself constitute a physical loss of property.
Given the policyholders' decision not to invoke the presence of COVID-19 on their property and the court's exceptionally narrow interpretation of "Loss of", it is likely that Henrys is not the last word on COVID-19 coverage in Georgia.
Lawrence J. Bracken II is a partner in Hunton Andrews Kurth's Atlanta office. He has more than 33 years of experience in resolving disputes over insurance coverage and other commercial matters.
Michael Levine is a partner in Hunton Andrews Kurth's Washington, D.C. office. He has more than 20 years of experience in litigating insurance disputes and giving advice to customers in insurance matters.
Rachel Hudgins is employed at Hunton Andrews Kurth's Atlanta office. She represents clients in complex insurance coverage and incredible disputes.