Restaurant Asks Court to Declare Coronavirus Shutdown Covered By Insurance Policy

By Jim Sams | March 17, 2020

A restaurant in the heart of the New Orleans tourism district filed a lawsuit on Monday asking a state judge to declare that its business-interruption policy will cover its damages if it is ordered to close by civil authorities in response to the coronavirus.

Although it was not yet clear on Monday whether an emergency order by Gov. John Edwards would force the closure of the Oceana Grill, attorney John W. Houghtaling II said it would be irresponsible not to get in front of the issue and protect his client’s rights. He said insurance agents around the country — possibly being coaxed by insurers — have been irresponsibly telling business owners that their business-interruption policies won’t cover shutdowns caused by coronavirus.

John Houghtaling

“I can’t imagine how defense counsel are going to walk into court and say that coronavirus does not cause damage to property, or contaminate property,” said Houghtaling, who is majority owner of Gautheir Murphy & Houghtaling in Metairie, Louisiana. “I’ve talked to restaurant owners from here to New York City and they all being told the exact same thing by their agents.”

A Dallas attorney who represents insurance carriers said the lawsuit is premature.

“The normal process is for the policyholder to file a claim, let the insurance company evaluate the coverages under the policy, and then determined whether coverage exists,” said Steven J. Badger, a partner with Zelle LLP.

The Oceana Grill serves up Cajon fare in a sprawling space that seats 500 at the corner of Conti and Bourbon Streets in the French Quarter. Normally the restaurant is packed even on weekdays, Houghtaling said, but the coronavirus has thinned the hordes of tourists who usually prowl Bourbon Street.

New Orleans Mayor LaToya Cantrell on Monday ordered all restaurants in the city to limit operations to delivery only. That follows an order by the governor on Friday that barred any congregations of more than 250 people.

Houghtaling argues in a petition filed with the Orleans Parish Civil District Court that any damages caused by a shutdown are a “real physical loss” that is covered by Oceana’s business interruption policy with Lloyd’s of London syndicates. The policy does not have an exclusion for viruses or pandemics, the suit says.

In a telephone interview, Houghtaling said his client could have self-insured for a business interruption, but chose to set aside a portion of its earnings to buy insurance coverage. He said he became concerned that Lloyd’s would deny coverage after reading a column posted online last week by Zelle attorney Shannon O’Malley that asserted coronavirus shutdowns do not cause direct physical loss or damage to property and would not be covered. Zelle often represents Lloyd’s in coverage disputes.

Houghtaling argues that coronavirus lives on surfaces for as long as 28 days, particularly in humid areas at temperatures below 84 degrees. “It is clear that contamination of the insured premises by the coronavirus would be a direct physical loss needing remediation to clean the sources of the establishment,” the petition says.

Steven Badger

Lawyers do no agree on the facts any more than they do on principles. Zelle’s O’Malley said in her column that the virus lives for only two hours to nine days on surfaces. A study by the National Institute of Health concluded the virus can live on surfaces for up to three days.

Any business interruption claims may be denied because government shutdowns are usually ordered as a precaution, not because of known contamination, if Zelle attorneys are to be believed. Coverage can also be limited by the duration of any contamination.

“In some ISO forms, the period of restoration has a waiting period, such as 72 hours, before coverage begins. And the period lasts only as long as it should take to repair the physical loss or damage using due diligence and dispatch,” O’Malley wrote in her column. “If the ‘physical damage’ is the particles of virus on surfaces of a building, how long should it reasonably take to use soap and water, or bleach, to clean those surfaces?”

Badger said his colleague O’Malley’s column was one of the better analyses he’s seen. He said he agreed with her that insurance policies provide coverage only if there is a direct physical loss.

“Whether there is coverage for business losses arising out of civil authority orders is dependent on policy language,” he said in an email. “Insurers will have to consider the reasons behind the civil authority order, including whether they are reactive to property damage or pro-active to avoid future damage or injury, and the breadth of those orders.”

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Latest Comments

  • March 24, 2020 at 1:40 pm
    Angela Furino says:
    You need to read beyond the coverage heading to determine coverage for any loss. Every coverage is subject to exclusions and limitations.
  • March 23, 2020 at 6:47 pm
    Jason Upton says:
    Every policy has exclusions. It has never been the case that everything is covered.
  • March 21, 2020 at 4:48 pm
    Ayme Harrison says:
    I'm having a hard time understanding how business interruption insurance should not apply when our local government has forced our restaurants to close. Call me stupid but isn... read more

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