Federal courts in Massachusetts and Arizona have ruled in favor of insurers in COVID-19 business interruption disputes filed by restaurants and in both cases, the plaintiffs have not provided evidence of physical harm.
Legal Sea Foods LLC, a 34-restaurant Boston-based chain, filed a lawsuit against its insurance company, New York-based Strathmore Insurance Co., a unit of the Greater New York Group, in May.
It is said that Strathmore had refused to pay interruption costs in connection with the coronavirus pandemic, even though its policy was issued in March, when the pandemic was already widely recognized, and that the coverage did not cover virus exclusion.
It filed an amended complaint in September, alleging the actual presence of COVID-1
"Legal does not claim that its operations were likely to incur losses due to the presence of COVID-19 at the designated properties," the decision states. "Instead, it indicates in the (amended complaint) that & # 39; (t) the Orders caused and continues to cause & # 39; the losses for which it requires the right to coverage."
The decision also states that "even if Legal had correctly alleged that COVID-19 caused the loss of business interruption due to its presence at the designated properties, it would not be entitled to coverage under the policy.
" Courts in Massachusetts has had the opportunity to interpret the phrase "direct physical loss" and has made so narrow and concluded that it requires some form of tangible, material loss, "the decision stated.
"The COVID-19 virus does not affect the structural integrity of property in the intended manner and thus cannot constitute" direct physical loss of or damage to "property," it said.
The decision also states that the policy requires the insurer to pay for the chain's loss of business interruption as a result of a civil authority action only if it "prohibits access" to properties and does not apply to those who "only" restrict "such access."
"Although Legal claims that the orders provided for the closure of and prohibited access to any of its insured restaurants, the plaintiff does not identify any specific order as expressly and completely prohibited access to any of the designated properties," the decision states,
"It is immaterial whether it is economically feasible for Legal to continue the restaurant business solely for implementation and delivery sales. Rather, the relevant investigation is whether the order prohibited access to the designated properties, which they obviously did not," the decision said, dismissing the case.  Legal Sea Foods attorney Michael S. Levine, a partner with Hunton Andrews Kurth. LLP in Washington, said in a statement that the company is disappointed with the decision.
"Legal is a case based on the physical loss and damages caused by it. the actual presence of COVID-19 in its restaurants, not just government orders.This supervision is just one of several critical errors in the court's decision.
"In addition, like some other federal courts, this court jumped to a piece of evidence on how COVID-19 affects property. This issue was not before the court. The only thing the court should have weighed is whether Legal "likely" is appealing for a covered claim; proof was not yet necessary, although Legal can overcome that obstacle, if given the opportunity.
"Given these and other errors in the Court's decision, Legal is considering its options."
The insurer's lawyers did not respond to a request for comment.
In the Arizona case, Mesa-based B Street Grill and Bar LLC sued Cincinnati Insurance Co. on behalf of its three restaurants, according to Friday's decision by the U.S. District Court in Phoenix in B Street Grill and Bar LLC, et al. v. Cincinnati Insurance Co.
The chain said in its complaint that both its food and beverage manager and one of its owners had tested positive for COVID-19.
"Central to the policy is that the loss must be linked to" unintentional physical loss or unintentional physical damage "to the properties," the decision states. "The policy in question requires actual physical damage to the plaintiff's property," which the plaintiffs have not claimed.
It "tried to show physical harm in the complaint by claiming that two people who regularly worked in its restaurants received COVID-19" and by claiming that their lost income due to COVID-19 and the government's restrictions constituted actual physical damage.
"However, the fact that the plaintiffs needed to clean surfaces that could host the virus does not constitute actual physical damage that entitles them to coverage under the policy," the decision said.
"The complainant was able to easily remedy the problem by cleaning diligently, and it was obvious that no repairs were necessary."
The judgment also stated: “Although the plaintiff claims that the policy does not contain an exception for viruses or infectious diseases, the court is not convinced that the plaintiff's allegations can trigger coverage. "
A Cincinnati Insurance spokeswoman said in a statement," We agree with the court's decision that coronavirus does not constitute a direct physical loss or damage to property – a condition of coverage.
“We recognize the challenges that many small businesses face. We have been and still are committed to doing our part to support families and businesses in our agents' communities, including helping them proactively manage risks and pay immediate damages.
The restaurants' lawyers did not answer. to a request for comment.
Last week, a federal district court agreed to dismiss COVID-19-related business interruption litigation filed by a Las Vegas restaurant chain against a Tokyo Marine Group by Cos. unit, where the insurer's coverage applies to consumable items, not service.