The insureds' motion for summary judgment seeking coverage for business interruption due to the COVID-19 pandemic was granted by the North Carolina Superior Court. North State Deli, LLC, et al. v. The Cincinnati Ins. Co., No. 20-CVS02569, Order Granting Plaintiffs' Motion for Partial Summary Judgment (Super. Ct. N.C., entered Oct. 9, 2020). This was the first ruling in the country finding in favor of policyholders for coverage for business income loss resulting from the COVID-19 pandemic. The order is here [Order].
Plaintiffs operated seven restaurants in North Carolina. The restaurants were insured by "all-risk" policies from Cincinnati, which offered business interruption coverage. The policies defined "loss" as "accidental physical loss or accidental physical damage."
Plaintiff sought coverage for losses arising out of the COVID-19 pandemic. Beginning in March 2020, governmental authorities entered orders mandating the suspension of business operations at various establishments, including plaintiffs' restaurants. Coverage for business interruption was denied and plaintiffs sued. Plaintiffs moved for summary judgment.
The court initially noted that the policies did not define "direct," "physical loss," or "physical damage." Dictionary definitions led the court to determine that "direct physical loss" described the scenario where business owners and their employees, customers, vendors, suppliers, and others lost the full range of rights and advantages of using or accessing their business property. This was precisely the loss caused by the government orders. Plaintiffs were expressly forbidden by government decree from accessing and putting their property to use for the income-generating purposes for which the property was insured. Therefore, this loss was unambiguously a "direct physical loss" and the policies provided coverage.
The policies provided coverage for "accidental physical loss or accidental physical damage." Cincinnati's argument that the policies require physical alteration conflated "physical loss" and" physical damage." The use of the conjunction "or" meant that a reasonable insured could understand the terms "physical loss" and "physical damage" to have distinct and separate meanings. Under Cincinnati's argument, however, if "physical loss" also required structural alteration to property, then the term "physical damage" would be rendered meaningless.
Finally, nothing in the policies excluded coverage for plaintiffs' losses. The policies did not exclude virus-related causes of loss.
Therefore, the policies provided coverage for business income for plaintiffs' loss of use and access to covered property mandated by the government orders as a matter of law. The motion for partial summary judgment was granted.
