A state Rhode Island judge has refused to dismiss a COVID-19 business interruption lawsuit filed by a Providence adult nightclub against Scottsdale Insurance Co. based on the governor and mayor’s executive orders calling for its closure because of the pandemic.

Atwell’s Realty Corp., the licensed operator of the Desire nightclub, had filed suit against Scottsdale seeking coverage under its “all risk” policy based on Gov. Gina M. Raimondo and Providence Mayor Jorge O. Elorza’s executive orders closing its business operations, according to Friday’s ruling by the Rhode Island Superior Court in Providence Atwells Realty Corp. v. Scottsdale Insurance Co.

The nightclub sought coverage based on the executive orders under the civil authority coverage in its all-risk policy, as well as its contention the pandemic had caused direct physical property damage to the nightclub.

In ruling in the nightclub’s favor on its executive orders claim, the decision said Scottsdale argued Atwell’s failure to allege there was damage to any property within one mile of the premises, and civil authority prohibiting Atwell’s from accessing the premises, are both required for civil authority coverage.

The insurer’s arguments that it failed to state a civil authority coverage claim “are mistaken in two respects,” the ruling said.

First, contrary to Scottsdale’s contention, the nightclub did allege there was property damage within one mile of the premises. It also plead COVID-19 “is a physical substance that can alter property,” the ruling said.

In addition, “Atwells alleges that the Executive Orders forced non-essential businesses to close and its business fit into the category of those non-essential businesses,” the ruling said.

“Furthermore, in construing the Civil Authority coverage in accordance with its very purpose – to compensate an insured for loss of income, which is derived from its patrons – the language is ambiguous and reasonably susceptible to more than one meaning, including Atwells’ meaning that the civil authority prohibited its patrons form accessing the Premises,” the ruling said.

The policy’s virus exclusion is not applicable here, it said. “Because the language of the Virus Exclusion limits the losses for which Scottsdale agreed to pay and which Atwell alleged were caused by the Executive Orders, Scottsdale has not met its burden of proving, as a matter of law, that the Virus Exclusion applies to preclude Civil Authority coverage under the facts alleged by Atwells,” it said, in refusing to dismiss the case.

The court, however, ruled against Atwell on its property damage claim. “Because Atwells did not allege that its operations were suspended in order for Atwells to somehow repair the property, such as a restoration effort to rid the Premises of COVID-19, it did not plead facts sufficient for prima facie that coverage for the loss of business income exists under the policy,” the ruling said.

Attorneys in the case did not respond to requests for comments.

Last month, a federal district court ruled physical damage is not necessarily visible to the eye, in refusing to dismiss a COVID-19 business interruption lawsuit filed by Alabama restaurants.

More insurance and risk management news on the coronavirus crisis here.