Court Finds Plaintiff’s COVID-19 Business Interruption Claim Valid
A federal judge in Ohio ruled on Tuesday that a restaurant company’s COVID-19 business interruption claim was valid.
Henderson Road Restaurant Systems, Inc. had sued Zurich American Insurance Company for denying their claim, and the judge granted Henderson’s motion for summary judgment regarding breach of contract and declaratory judgment.
Henderson owns the Hyde Park chain of steakhouses as well as other restaurants in multiple states, including Ohio, Indiana, Florida, Pennsylvania and Michigan. The judge chose to apply Ohio law to the case as “a federal court sitting in diversity applies the substantive law of the state in which it sits,” according to the judge’s order.
The order notes that Ohio law dictates that courts must “look to the plain and ordinary meaning of the language used in the policy unless another meaning is clearly apparent from the contents of the policy,” adding that “where provisions of a contract of insurance are reasonably susceptible of more than one interpretation, they will be construed strictly against the insurer and liberally in favor of the insured.”
The order finds that Zurich’s policy in question was reasonably susceptible of more than one interpretation, finding that the policy language is ambiguous and thus must be construed liberally in favor of Henderson. “When the Policy is liberally construed in Plaintiffs’ favor, it provides coverage for Plaintiffs’ lost business income,” the order states.
Zurich’s policy, according to the order, provided business income coverage for:
The actual loss of “business income” you sustain due to the necessary “suspension” of your “operations” during the “period of restoration”. The “suspension” must be caused by direct physical loss of or damage to property at a “premises” at which a Limit of Insurance is shown on the Declarations for Business Income. The loss or damage must be directly caused by a “covered cause of loss.”
The order found that Henderson successfully demonstrated their operations were suspended during a period of restoration, this suspension caused a loss of business income, the suspension was the result of direct physical loss of or damage to property at the premises, and that the loss or damage was caused by a “covered cause of loss.”
Zurich had argued that the policy’s microorganism exclusion allowed them to deny Henderson’s claim. That exclusion stated “we will not pay for loss or damage… directly or indirectly caused by… microorganisms,” and Zurich argued that a government shutdown order prompted by a pandemic constitutes loss or damage indirectly caused by microorganisms.
The judge disagreed, finding that “it was clearly the government’s orders that caused the closures.”
The judge noted that Ohio law dictates insurers’ exclusions from liability must be clear and exact in order to be valid. The judge found the microorganism exclusion did not “clearly exclude loss of property caused by a government closure. Plaintiffs’ restaurants were not closed because there was an outbreak of COVID-19 at their properties; they were closed as a result of governmental orders.”