Don’t Give Up Yet – Another COVID-19 Victory for Policyholders

    The Louisiana Court of Appeals reversed the lower court's decision, finding there was business interruption coverage for losses due to government shutdown orders related to the COVID-19 pandemic. Cajun Conti LLC v. Certian Underwriters at Lloyd's, 2022 La. App. LEZXIS 939 (La. Ct. App. June 15, 2022).

    The insured owned a restaurant in the French Quarter of New Orleans. Prior to the COVID-19 pandemic, the insured employed 200 people and could accommodate up to 500 guests at a time. Government shutdown orders limited restaurant operations to take out and delivery services in March 2020. The insured reopened on May 16, 2020, but in limited capacity to comply with the updated mayoral guidelines. 

    On March 16, 2020, the insured filed suit for a declaratory judgment that the Lloyd's policy covered losses due to the pandemic. The policy covered losses due to "direct physical loss of or damage to" the insured property. Lost business income and extra expenses were covered for losses sustained due to necessary suspensions of the property's operations during the "period of restoration." Lloyd's filed a motion for summary judgment arguing that the claims were not covered because there was no "direct physical loss of or damage to" property. The motion was denied and a bench trial proceeded. The trial court rendered judgment denying the insured relief and an appeal was filed.

    The court of appeals noted that the "all-risk" policy covered loss of business income sustained due to necessary "suspension" of operations during the "period of restoration." The "suspension" had to be caused by "direct physical loss of or damage to the property." The policy did not define "direct physical loss' or "damage." 

    "Suspension" was defined in the policy as the "slowdown or cessation of our business activities." Therefore, the complete cessation of operations and an uninhabitable property were not required. Suspension included the slowdown of business activities, which occurred here, as well as the compete cessation of business operations. 

    Lloyd's pointed to recent cases in other jurisdictions that interpreted "physical" in relation to coronavirus claims as requiring a tangible or corporeal loss of property or damage. These cases were not binding on this court, however. 

    The court found the policy ambiguous.  Under one reasonable interpretation, suspension of business operations due to "direct physical loss of or damage to the property" meant the loss of the property's full use, as Lloyds argued. The insured's expert opined that the contagion-causing viral particles persisted in the air of the premises. The presence of COVID-19 substantially diminished the usable space of the property.

    Another reasonable interpretation was that the suspension of business operations due to "direct physical loss of or damage to the property" required the full loss of the property's use, a situation distinct from the loss of the property's full use. Under this scenario, the insured would have had to shut down the restaurant completely for some period of time in order to qualify for coverage.

    The presence of this ambiguity and the existence of two equally reasonable interpretations as to what constituted a "direct physical loss of or damage to" the insured property meant the policy was construed in favor of coverage.

    The ambiguity allowed the court to consider parole evidence. The court noted that when the policy was issued, Lloyd's could have included a viral exclusion to the policy. The insured testified it would not have purchased the policy with such an exclusion. This testimony provided insight regarding how the insured reasonably construed the policy at the time of its purchase. 

    Consequently, the judgment of the trial court was reversed. The court held that coverage existed for loss or damage caused by "direct physical loss of or damage to" the insured premises as a result of contamination by COVID-19.