North Carolina restaurants win first COVID-19-related business interruption coverage suit
Like thousands of other small businesses, the restaurants sought coverage from their insurer, the Cincinnati Insurance Co., for their losses that stemmed from state-mandated shutdowns implemented to curb the spread of the virus. After being denied coverage, the restaurants filed suit against Cincinnati, contending that the government’s order that forced their closure was a non-excluded “direct physical loss.”
A North Carolina judge has recently ruled in favor of a group of restaurants in COVID-related business interruption litigation, marking the first victory among thousands of similar lawsuits across the country. Judge Orlando F. Hudson Jr. granted summary judgment to the sixteen restaurants on their claim for declaratory relief in an order published in early October.
Like thousands of other small businesses, the restaurants sought coverage from their insurer, the Cincinnati Insurance Co., for their losses that stemmed from state-mandated shutdowns implemented to curb the spread of the virus. After being denied coverage, the restaurants filed suit against Cincinnati, contending that the government’s order that forced their closure was a non-excluded “direct physical loss.” Cincinnati argued that the coverage does not apply since there was no physical alteration to the property, a necessary requirement under their interpretation of the terms of their policy.
Judge Hudson Jr. ruled that such an interpretation makes other terms in the policy meaningless. He writes, “The policy covers ‘accidental physical loss or accidental physical damage.’ ‘Physical damage’ reasonably refers to an alteration, and Cincinnati’s interpretation of ‘loss’ would make it redundant with ‘damage,’ while courts must give every term in a contract meaning (1).” The judge added that at the very least, the dispute over the policy’s terms shows ambiguity, and any ambiguity ought to be construed in favor the policyholder. The policy also notably did not contain a virus exclusion, a change made by several insurers after the SARS outbreak in 2003.
Gagan Gupta of Paynter Law, an attorney for the restaurants, commented on the ruling. “Our clients and thousands of other businesses across North Carolina and the nation have paid untold amounts in premiums for business interruption coverage, which should provide coverage for the widely-known interruptions arising from COVID-19-related government shutdown orders. Judge Hudson’s ruling affirms that insurance companies like Cincinnati are dodging their duty to provide this coverage (2).”
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