Louisiana appeals court dishes up win for restaurant in COVID business-interruption case

An empty restaurant is pictured in New Orleans, Louisiana, US March 15, 2020. REUTERS / Jonathan Bachman

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  • Split Louisiana court finds policy ambiguous, reads it in favor of New Orleans’ Oceana Grill
  • First appellate win for an insured business

(Reuters) – A Louisiana appeals court found that an all-risk property policy covered business-income interruption losses caused by COVID-19 shutdown orders and other operational restrictions.

In a 3-2 split Wednesday, Louisiana’s Fourth Circuit Court of Appeal reversed a bench verdict for Certain Underwriters at Lloyd’s, London in an action for declaratory relief filed by the operators of New Orleans’ 500-seat Oceana Grill. It’s the first appellate win for an insured business according to a database at University of Pennsylvania Carey Law School.

Two of the panel’s judges found the policy’s requirement of “direct physical loss or damage” was ambiguous as applied to a temporary suspension of operations, and read it in favor of the insured restaurant. A third judge concurred on other grounds.

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The two dissenters said the policy clearly required physical damage to property, and that there was no “manifest error” in the trial judge’s factual finding that the presence of COVID-19 did not cause physical damage. They also said the majority had ignored an express exclusion for “loss of use” in Lloyd’s policy, and had erred in relying on cases interpreting homeowners’ policies.

In an email Thursday, Lloyd’s attorney Virginia (Ginger) Dodd of Phelps Dunbar said the ruling was inconsistent with “ten federal circuit courts of appeal and every other state appellate court” to address the issue. “We will pursue all options to address what we believe to be an outlier decision,” Dodd said.

Oceana’s lead lawyer, John Houghtaling of Gauthier, Murphy & Houghtaling, said in an interview Thursday that the decision will “dramatically change the way federal courts have treated these cases.” In particular, judges should stop barring evidence about the industry’s development and widespread use of a standard virus exclusion, which he said proves that insurers consider contamination to be “physical loss or damage.”

In a footnote, the Louisiana appeals court acknowledged that such evidence is generally inadmissible to establish coverage, but may be evidence of the parties’ intent once an ambiguity is found.

The appeals court did not order Lloyd’s to pay a specific amount to Oceana. Houghtaling declined to say how much the restaurant is seeking.

While Wednesday’s appellate decision is the first to find coverage for COVID-19 income losses under an all-risk property insurance policy, a state appellate court in New York on Monday affirmed a Bronx judge’s ruling that allowed the New York Botanical Garden to sue its Pollution Liability Insurer, Allied World Assurance, for denying its COVID-related loss of business income claim and for breach of the implied covenant of good faith and fair dealing.

Oceana’s appellate case is Cajun Conti LLC et al v. Certain Underwriters at Lloyd’s, London, et al., Louisiana Court of Appeal – Fourth Circuit, No. 2021-CA-0343.

For Cajun Conti et al: John Houghtaling and Jennifer Perez of Gauthier, Murphy & Houghtaling; Daniel Davillier of Davillier Law Group

For Certain Underwriters at Lloyd’s, London: Kyle Schonekas of Schonekas Evans McGoey & McEachin; Heather Duplantis and Virginia Dodd of Phelps Dunbar

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