The mandatory lockdowns imposed by state governments throughout the country have had a debilitating effect on so-called “non-essential” businesses, preventing business owners from maintaining stable revenue streams so as to keep their enterprises afloat as we collectively attempt to weather the storm created by the coronavirus epidemic.
Many businesses are apt to turn to their first-party commercial insurance policies as a lifeline during these uncertain times, seeking to recoup their loss of business income occasioned by the shutdown.
Insuring agreements contained in first-party commercial policies pertaining to loss of business income typically provide that coverage is available for actual loss of business income sustained due to the necessary suspension of the insured’s operations caused by “direct physical loss of or damage to property” at the insured’s premises.
A related business income loss coverage provision found in most first-party commercial policies-which will likely be the focus of future COVID-19 business interruption coverage litigation-is the Civil Authority Coverage provision, which typically provides that where a covered peril causes damage to property other than the insureds premises, coverage is available for actual loss of business income and necessary extra expense caused by the action of civil authority that prohibits access to the insured premises.
Four recently-filed cases pertain to the potential application of one or both of these provisions and exemplify the types of issues that will undoubtedly be addressed in the wave of coronavirus-related business interruption coverage litigation that is surely on the horizon.
Cajun Conti, LLC, et. al. v. Certain Underwriters of Lloyd’s London
In Cajun Conti, the insured restaurant filed a declaratory judgment action in the Civil District Court for the Parish of Orleans, Louisiana on March 16, 2020, seeking a declaration that its “all risk” policy provides coverage for the loss of business income resulting from the government-mandated closure of the restaurant.
The restaurant’s declaratory judgment complaint argues that the “direct physical loss” requirement for coverage is satisfied, where the coronavirus can remain on surfaces for days, rendering the property within the restaurant unusable.
In its filing, the restaurant stresses that the “all risk” policy contains no exclusions that preclude coverage for virus-related loss.
French Laundry Partners, LP v. Hartford Fire Ins. Co.
In French Laundry, a pair of restaurants filed a declaratory judgment action in the Superior Court of Napa County, California on March 25, 2020, arguing that they are entitled to coverage for loss of business income under the Civil Authority Coverage provision of their “all risk” policy as a result of the government-mandated closure of “non-essential” businesses arising out of the coronavirus outbreak.
The restaurants’ declaratory judgment complaint specifically states that the virus has caused physical damage to property in the “immediate area” of the restaurants, a necessary pre-requisite for coverage to attach under the Civil Authority Coverage.
Like the insured restaurant in Cajun Conti, the insured in French Laundry argues that its “all risk” policy does not contain a specific exclusion that precludes coverage for losses occasioned by the virus.
Big Onion Tavern Grp., LLC v. Society Ins., Inc.
In Big Onion Tavern, an insured group of Chicago-based restaurant and movie theater owners filed an action in the United States District Court for the Northern District of Illinois on March 27, 2020, arguing that its insurer wrongfully denied a business income loss claim arising out of the state-mandated business closures relating to the coronavirus.
The complaint alleges that the insurer’s basis for the denial was the absence of any evidence of “direct physical loss.”
The insured’s complaint states that the policy’s Civil Authority Coverage applies because the authorities have prohibited access to the insured premises and no express exclusion is contained in the policy so as to preclude coverage.
Prime Time Sports Grill, Inc. v. Certain Underwriters at Lloyd’s London
In Prime Time Sports Grill, the insured sports bar filed a declaratory judgment action in the United States District Court for the Middle District of Florida on April 2, 2020, seeking a declaration that its commercial policy covers the loss of business income resulting from the coronavirus-related shutdown of non-essential businesses ordered by the state government.
The complaint alleges that the insurer denied coverage on March 23 on the basis that coverage is triggered only upon evidence of physical losses and property damage.
The insured’s complaint states that its policy does not contain an exclusion barring coverage for business losses resulting from government orders requiring the suspension of business activities.