Court Finds Restaurant’s Insurance Provides Coverage For COVID-19 Business Interruption

In a ruling that may signal how courts will hundreds of other COVID-19 business interruption lawsuits, a federal judge recently determined a policy written by Zurich American Insurance Company should provide coverage for an Ohio restaurant group’s financial losses amid the pandemic.

Since the coronavirus emerged a year ago, leading to widespread government “stay home” orders and restrictions on certain businesses, an influx of insurance coverage lawsuits have been filed by small business owners nationwide, alleging that their insurers are refusing to honor coverage for business interruption losses.

While insurance companies have been routinely denying such claims under business interruption coverage, plaintiffs maintain that the specific language of different policies does not properly exclude all damages linked to the pandemic.

There are an estimated 1,300 COVID-19 business insurance lawsuits already filed in courts nationwide, which likely only represent a small fraction of all companies denied coverage for business interruption under policies they had in place when the pandemic entered the United States.

One of those complaints was filed in June by Henderson Road Restaurant Systems, Inc., which owns a chain of Hyde Park steakhouses and other restaurants in several states, including Ohio, Florida, Indiana, Michigan and Pennsylvania. The lawsuit claims Zurich tried to renege on its business insurance coverage contract, claiming that disruption caused by the viral pandemic are excluded under the policy.

However, the plaintiffs have pointed out that Ohio law indicates insurance contracts must be “construed liberally in favor of the insured”, arguing that Zurich should be required to cover loss of business income sustained during the suspension of operations.

At issue in the case was whether such losses were linked to a direct physical loss of, or damage to, property. Both plaintiffs and Zurich filed motions for summary judgment, asking the court to issue an early ruling on the issue.

In an opinion and order (PDF) issued on January 19, U.S. District Judge Dan Polster granted the plaintiffs’ motion for summary judgment in two of the counts presented, including breach of contract and declaratory judgment. While the Court denied plaintiffs’ motion to grant summary judgment for a claim involving bad faith denial in coverage, the ruling indicate that Zurich may be held liable for COVID-19 business interruptions under the policy.

Judge Polster agreed to certify the Court’s opinion for an interlocutory appeal; allowing the parties to pursue any appeals of this legal issue before final damages have been determined.

“An interlocutory appeal of this dispositive issue will enable the parties to appeal the legal issue before spending additional time and money on the issue of damages,” wrote Judge Polster in the opinion, which could provide a gauge for how courts will interpret similar policy language in other business interruption lawsuits being pursued throughout the federal court system.

The Court noted in the opinion that neither party could have anticipated the events of 2020 when signing the insurance contract, but that Ohio law indicates the end result and interpretation should favor the insured party.

“Going forward, Zurich could undoubtedly include an exclusion for government closures in its policies. But the Policy that Plaintiffs purchased did not contain such an exclusion,” Judge Polster wrote. “This is the conclusion that must be reached under Ohio law because the Policy’s language did not clearly identify the unusual and unforeseeable events that led to the closings of Plaintiff’s properties. Nor could Plaintiffs have been aware of such an exclusion when they purchased a policy and paid premiums to Zurich for coverage.”

COVID-19 Insurance Litigation Status

In early August, the U.S. Judicial Panel on Multidistrict Litigation (JPML) rejected a requested to centralize all of the insurance business interruption claims before one judge for coordinated pretrial proceedings, indicating that forming one MDL would provide little benefit for the parties or the court system, given the large number of different insurers and policy language involved in the litigation.

Since then, a number of individual requests have been filed to consolidate claims involving specific insurers, and the U.S. JPML previously agreed to establish centralized proceedings for claims involving Society Insurance Company in the Northern District of Illinois. However, following oral arguments presented last month, the panel agreed to centralize claims involving two insurance companies; Erie Insurance Company and Generali.

In complex product liability litigation, where a large number of claims are filed throughout the federal court system by individuals who suffered similar injuries as a result of the same or similar products or venues, it is common for the federal court system to centralize the litigation for pretrial proceedings. However, if settlements are not reached during discovery or following a series of early “bellwether” trials, each claim may later be remanded back to the U.S. District Court where it was originally filed to go before a jury.

It is estimated that thousands of similar COVID-19 business interruption insurance lawsuits will likely be filed in the coming months, as more small businesses are pushed to the brink only to find their insurance companies are denying payments on policies they purchased. Eventually, there may be close to a dozen different MDLs established before different U.S. District Judges to coordinate discovery and pretrial proceedings involving separate insurance companies.