Summary judgment was awarded to the insureds on their business interruption claim due to governmental closures during the COVID-19 pandemic. Henderson Rd. Rest. Sys. v. Zurich Am. Ins. Co., 2021 U.S. Dist. LEXIS 9521 (N.D. Ohio, Jan. 19, 2021).
Plaintiffs owned restaurants in several states. In the spring of 2020, state governments issued orders restricting the operations of restaurants in an effort to abate the spread of the coronavirus. Plaintiffs closed all but four of their Ohio restaurants on March 15, 2020. These four restaurants continued to provide carry-out dining until March 17, 2020, and then they closed. Plaintiffs speculated that some of their restaurants would never re-open due to new seating capacity restrictions, and those that re-opened had reduced staffing and suffered financial loss.
Zurich denied coverage and plaintiffs sued. Count I was for breach of contract, Count II asserted a bad faith denial of coverage, and Count III requested a declaratory judgment. The parties stipulated to facts, including stipulating that the restaurants were not closed as the result of the known or confirmed presence of COVID-19. Further, there were no physical alterations or structural damage to any of the restaurants.
The parties filed cross motions for summary judgment. Zurich argued there was no coverage because plaintiffs' economic losses were not caused by "physical loss or damage to property." Zurich further argued that the underlying cause of loss was COVID-19; that COVID-19 was a microorganism; and that the Microorganism exclusion applied. Plaintiffs argued that "direct physical loss of" included an inability to possess something in the real or material world, and that the government orders caused plaintiffs to lose their property in this manner.
The court first found that the policy was susceptible to more than one interpretation. The policy promised to pay for "direct physical loss of or damage to real property." Plaintiffs argued that physical loss of the real property meant something different than damage to the real property. The court agreed. Otherwise, why would both phrases appear side-by-side separated by the disjunctive injunction "or"? Because the policy was susceptible of more than one interpretation, it had to be liberally construed in favor of the insureds.
The policy provided business income coverage for suspension of operations. The policy defined "suspension" as "the slowdown or cessation of your business activities." Plaintiffs demonstrated that that there was a suspension of their operations. Plaintiffs also showed that there was a loss of business income due to the suspension of their operations. Zurich did not contest that plaintiff suffered a loss of business income. Plaintiffs also demonstrated that the state orders leading to the restaurants' closing were caused by a fortuitous event. Therefore, plaintiffs were entitled to summary judgment on the issue of coverage under the policy.
The court next considered the Microorganism exclusion, which barred coverage for any loss caused by any activity of microorganisms. Plaintiff argued that the exclusion did not apply because the loss of their properties was not caused by any activity of "microorganisms." The parties had stipulated that the restaurants were not closed due to the presence of COVID-19, but because of the government closures. The court agreed with plaintiffs' argument.
Zurich argued that despite the broad language of the exclusion, it was seeking to avoid coverage for "viral and bacterial contamination" of properties when approval for the exclusion form was sought from the Ohio Department of Insurance. Zurich further argued that Ohio had not recognised the doctrine of regulatory estoppel. The court found this was not relevant. The representations to the Ohio Department of Insurers showed the insurer's intent was to exclude coverage for property damage caused by the contamination of viruses and bacteria on the insured's premises, not the loss of business income caused by a government closure. Here, the plaintiffs' property was not damage by the contamination of a virus or bacteria.
The court granted summary judgment to plaintiffs on Counts I and III, but denied the motion on Count II for bad faith.
