Two federal cases in the Northern District of Ohio recently reached very different conclusions on whether the state’s COVID-19 shutdowns of restaurants permit valid claims for business interruption insurance coverage.
In Santo’s case, Judge Pamela Barker dismissed the policyholder’s claims for business interruption coverage on two main grounds.
First, the court found: (a) Santo’s failed to plead a threshold claim of “direct physical loss of or damage to” its insured premises, given the absence of any alleged “tangible” or “structural” damage beyond “economic losses”; and (b) even if a covered claim had been alleged, coverage was precluded by the “virus exclusion” in the coverage forms.
The Court further noted that the form listed “additional coverages” including the following:(1) We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your operations during the period of restoration.
The operative portions of the policy in Henderson read as follows (and are virtually identical to the key provisions interpreted in Santos):“We will pay 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.’ … The loss or damage must be directly caused by a ‘Covered cause of loss. ’” The Henderson court accepted the policyholder’s argument about the meaning, or at least the ambiguity, of the phrase “direct physical loss of” the real property.