And So It Begins: The COVID-19 Coverage Cases Start

The first insurance coverage case has been brought by a restaurant in New Orleans seeking a declaratory judgment against its insurer, as well as the governor and the state, that the restaurant’s insurance policy does not contain an exclusion for viral pandemic and that the policy will cover the restaurant for any future civil authority shutdowns due to physical loss from COVID-19 contamination, and that the policy provides business income coverage in the event COVID-19 contaminates the restaurant.  The complaint was posted on Insurance Law 360 (subscription required).

The case, Cajun Conti LLC v. Certain Underwriters at Lloyd’s, London, was filed in Civil District Court for the Parish of Orleans, Louisiana.  The complaint states that is does not seek any determination of whether COVID-19 is physically in the restaurant, the amount of damages or any other remedy besides declaratory relief.

The complaint seeks several declarations: (1) whether the Governor’s March 13 civil authority order applies to restaurants whose capacity exceeds 250; (2) whether the civil authority order and the Mayor of New Orleans’ March 15 order trigger the civil authority provisions of the insurance policy; and (3) affirming that the policy does not contain an exclusion for viral pandemic, the policy provides coverage for future civil authority shutdowns due to physical loss from COVID-19 contamination and that the policy provides business income coverage in the event that COVID-19 contaminates the restaurant.

The complaint alleges that the policy is an all-risk business policy, providing property, business personal property, business income and extra expense, and ordinance law coverage.  The complaint admits that direct physical loss is required unless the loss is specifically excluded or limited in the policy.  The complaint alleges that the policy has an exclusion for biological pathogens involving terrorism or malicious use, but no exclusion for losses due to virus or global pandemic.

Interestingly, the complaint in paragraph 17 alleges that, upon information and belief, the insurer has accepted policy premiums “with no intention of providing any coverage due to direct physical loss and/or from a civil authority shutdown due to a global pandemic virus.”  In paragraph 23, the complaint alleges “[i]t is clear that contamination of the insured premises by the Coronavirus would be a direct physical loss needing remediation to clean the surfaces of the establishment.”

Putting aside the jurisdictional and ripeness issues that likely will be litigated fully, the complaint highlights a couple of interesting issues.  First, whether contamination by COVID-19 is a direct physical loss to property.  Second, whether restrictions established by civil authorities on restaurant capacity or closure orders are covered under the policy.  Not having seen the policy language, it is difficult to assess the arguments.

We can be sure that other cases will follow with less speculative facts.  The body of coverage law for the spread of disease will expand and we will see how the courts interpret the various policies being asked to respond to COVID-19.

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