The Louisiana Supreme Court on Friday overturned a rare state Supreme Court ruling in favor of policyholders, ruling in a split opinion that policyholders are not entitled to COVID-19-related business interruption coverage.
The court said in its 5-2 ruling that it reversed a state appeals court and reinstated a trial court ruling that denied coverage, “finding no ‘direct physical loss of or damage to property,'” according to the decision in Cajun Conti LLC et al. v. Certain underwriters at Lloyd’s et al.
The latest state Supreme Court ruling joins 10 other state Supreme Courts that have ruled in favor of insurance companies, with only Vermont Supreme Court decisions for policyholders.
In February 2021, after a bench trial that was the first to be held in the matter, a judge in the state of Louisiana ruled in favor of Lloyd’s underwriters in the case filed by the owner and operator of Oceana Grill in New Orleans’ French Quarter.
In June 2022, the ruling was overturned, with a Louisiana appeals court ruling that the restaurant was entitled to business interruption coverage due to ambiguous policy language.
In the latest ruling, the majority opinion said: “Covid-19 did not cause harm or loss that was physical in nature.” It “has never repaired, rebuilt or replaced any property claimed to have been lost or damaged,” it said.
“We cannot change the terms of an insurance contract under the guise of contract interpretation when the policy uses ambiguous terms.”
The dissenting opinion states that while the restaurant suffered no physical damage, it “suffered physical loss of its property due to the physical contamination of the property by the covid virus, a physical thing.
“As smoke from a fire next door that did no physical damage to other premises, but caused the business to close until the odor could be removed and the business cleaned up, a physical loss occurred.”
Attorneys in the case did not respond to requests for comment.
Insurance attorney Laura A. Foggan, a partner with Crowell & Moring LLP in Washington, who was not involved in the case, said the ruling is “a strong affirmation of what courts around the country have found” in the insurance battle against Covid-19.
“It’s a refreshing rewrite of the need to just enforce the contract as written,” she said.
Policyholder attorney Peter A. Halprin, a partner with Pasich LLP in New York, who was not involved in the case, pointed to the dissent as providing an apt analogy.
If a business has to close because of smoke, even if there was no fire, that is “absolute physical damage.”