A New Orleans judge denied a motion for declaratory judgment that insurance coverage is owed to a restaurant for business income that was lost when it was required to close its dining room because of the COVID-19 pandemic.

The lawsuit filed by Cajun Conti LLC against Lloyd’s of London underwriters was the first known legal action by policyholders seeking business interruption coverage for shutdowns ordered because of the novel coronavirus.

New Orleans Parish Judge Paulette R. Irons ruled in favor of the restaurant in early rounds but entered a judgment in favor of the insurer on Feb. 10.

Separately, Travelers won the dismissal of a case brought by hotel operators in Ohio, seeking coverage for a COVID-related loss of business income. The U.S. District Court for the Northern District of Ohio in Cleveland, which issued the ruling in Ceres Enterprises v. Travelers Insurance Company, is notable because another insurer, Zurich American Insurance Co., recently lost a similar case brought by a restaurant operator—Henderson Road Restaurant Systems, Inc. d/b/a Hyde Park Grille, et al. v. Zurich American Ins. Co.—in the same Eastern district court. Different judges ruled in the cases.

During an earnings call which took place two days after the Henderson Road ruling, Travelers Chief Executive Officer Alan Schnitzer told analysts that his company’s standard policy language is different from the language issue in the Zurich case “in some very key respects,” without specifying the language difference or referring to Zurich by name. “In Ohio, and elsewhere, we remain very confident in our policy language and feel no differently about our business interruption exposure,” he said, noting that in recent months “across the country, the vast majority of these cases have been in the favor of insurers.”

The New Orleans Case

“After months of hard fought litigation and a full trial on the merits, the court ruled correctly,” the insurer’s attorney, Allen C. Miller with Phelps Dunbar in New Orleans, said in an email about the Cajun Conti decision. He declined further comment.

Judge Irons did not include a written opinion with her order denying Cajun Conti’s motion. She said only that the attorneys involved had submitted memoranda after a trial in December and she took those arguments under advisement.

Attorneys who represent insurers laid the groundwork to deny virus-related business interruption claims early on. They argued that coverage is not triggered under commercial property policies without some tangible physical alternation to the insured property.

State and federal judges around the country have ruled in favor of insurers in motions to dismiss or for summary judgment in about four cases out of five so far.

Cajun Conti owned a French Quarter bistro called Oceana Grille. Attorney John Houghtaling II filed a motion seeking a declaratory judgment from the Orleans Parish court that coverage would be owed for any business interruption on March 16, even before it was known whether emergency orders by Gov. John Bel Edwards would impact the restaurant’s revenues.

Houghtaling, a lawyer for Gauthier Murphy & Houghtaling LLC in Louisiana, also represents the Business Interruption Group. BIG is a coalition of restaurants and other businesses impacted by pandemic shutdowns.

Houghtaling pointed out that the restaurant’s owners paid extra to purchase an insurance policy that did not have an exclusion for damages caused by virus and bacteria, as most commercial property policies do.

The Gauthier Murphy & Houghtaling law firm refused to make any public comment about the ruling.

Rhonda D. Orin, an insurance recovery attorney for the Anderson Kill law firm in Washington, D.C., said the lack of a written opinion may give Cajun Conti a broader range of arguments on appeal, depending on local rules. She said judges sometimes make a tactical decision not to write their reasoning in their opinion in order to give the losing side more leeway with higher courts.

Although the ruling in Cajun Conti notches another victory for insurers, Orin said insurance recovery cases each come with their own sets of facts.

“This baseball counting—you’re up a run; you’re down a run—we’re not all playing the same game on the same field,” Orin said.

She said counting wins and losses in the lower courts might not yield an accurate prediction on how any individual case will ultimately be decided. Orin noted that on Jan. 28, a judge denied a motion by Philadelphia Indemnity Insurance Co. to dismiss a business interruption action by Goodwill Industries of Orange County. Orange County Superior Court Judge Peter Wilson said in his ruling that decisions by federal courts that decided in favor of insurers were not binding in his court rooms because the facts were distinguishable.

“We have to wait and see what comes next,” Orin said. “I find it hard to believe that the only industry that is not going to be affected by this [pandemic] is the insurance industry.”

The Latest Ohio Case

Judge J. Philip Calabrese, U.S. District Judge for the Northern District of Ohio, granted Travelers’ motion to dismiss a case brought by plaintiff Ceres Enterprises, the operator of hotels in Ohio, Indiana and Minnesota. Ceres sought declaratory judgment on its own behalf, and on behalf of a class of other hospitality businesses, that Travelers is obliged to cover their pandemic-related business interruption claims. The plaintiff also alleged breach of contract and bad faith.

“In this ruling, the Court does not intend in any way to dismiss or minimize the pain or difficulties those in the hospitality business have endured…But the question before the Court is a narrow one, limited to interpretation of language in the plaintiff’s insurance policy,” the judge wrote, finding that the Ceres failed to allege a covered cause of loss “according to the plain language of the policy.”

Like many of the business interruption cases that have been filed, this case focused on the language “direct physical loss of or damage to property at the premises” described in the policy declarations. Judge Calabrese ruled that while the policy does not define the terms, Merriam-Webster’s online dictionary does, finding that the phrase is “not ambiguous.”

After citing the dictionary definitions, including the meaning of the word “physical” (“having material existence [and being] perceptible…through the senses”), the ruling states:

“Taking these words together according to their ordinary meanings, ‘physical loss of’ property means material, perceptible destruction or deprivation of possession. ‘Physical damage to’ property means material, perceptible harm. In other words, the phrase intends a tangible loss of or harm to the insured property, in whole or in part. As the trigger for coverage, this policy language excludes financial or monetary losses resulting from the novel coronavirus, SARS-CoV-2, which occasioned this dispute for the simple reason that the virus did not work any perceptible harm to the properties at issue, even if (construing the allegations in Plaintiff’s favor) the virus may be found on surfaces there.”

The ruling goes on to cite language referring to the fact that Travelers coverage applies only during the “period of restoration.” Travelers cited this as a distinction from the Henderson Road case in its reply brief for the Ceres Enterprises case.

The court ruling for the dismissal states that the period of restoration ends “on the date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality” or “when business is resumed at a new permanent location.”

Interpreting “direct physical loss of or damage to” property as the plaintiff would like—to include “loss of intended use”—would “render the period of restoration nonsensical or meaningless because no repair, rebuilding or replacement of the covered property will occur,” the ruling says.

(A portion of this article was originally published on Claims Journal, a sister Wells Media publication of Carrier Management. Reporter Jim Sams is the editor of Claims Journal. Additional reporting by Susanne Sclafane)