A federal district court in Cleveland has refused to dismiss COVID-19 business interruption coverage litigation filed by a restaurant chain against a Zurich Insurance Group unit, holding its policy language was ambiguous, and a “microorganism” exclusion inapplicable.

Twinsburg, Ohio-based Henderson Road Restaurant Systems Inc., which operates restaurants in Ohio, Pennsylvania, Michigan, Indiana and Florida, filed suit against Zurich American Insurance Co. in U.S. District Court in Cleveland after it denied its business interruption claim in April, according to Tuesday’s ruling by the U.S. District Court in Cleveland in Henderson Road Restaurant Systems Inc. Zurich American Insurance Co.

The chain closed its restaurants in March in response to state government orders, according to the ruling.

Zurich’s policy language is “reasonably susceptible of more than one interpretation,” the ruling said. The policy provides it will pay for “direct physical loss of or damage to ‘real property’…Based on this language Plaintiffs argue that physical loss of the real property means something different than damage to the real property and this is a valid argument.

“Otherwise, why would both phrases appear side-by-side separated by the disjunctive conjunction ‘or’? Plaintiffs argue that they lost their real property when the state governments ordered that the properties could no longer be used for their intended purposes - as dine-in restaurants. The Policy’s language is susceptible to this interpretation.”

The ruling also held the policy’s microorganism exclusion does not apply because “it did not identify the possibility” that even absent      any microorganism activity damaging the property, “Plaintiffs may be required to close their dine-in restaurants due to government orders responding to a public health crisis.”

While the court granted the plaintiff summary judgment on the insurance coverage issues, it denied its bad faith claim, concluding it “had a reasonable justification for determining that there was no coverage under its policy” because other courts “have agreed with the arguments asserted by Zurich and found in favor of insurers.”

Zurich and plaintiff attorneys did not respond to requests for comment.

Separately, on Jan. 14, in a brief ruling, an Oklahoma state court judge refused to dismiss COVID-19-related business interruption coverage filed by the Cherokee Nation against American International Group Inc. unit Lexington Insurance Group and other insurers.

The April complaint in the case, Cherokee Nation; Cherokee nation Businesses, LLC; Cherokee Nation Entertainment, LLC v. Lexington Insurance Co. et al. states the nation “owns and operates property used in connection with multiple commercial businesses and services” within Oklahoma and that its property sustained “direct physical loss or damage” because of the pandemic. 

In a one-page ruling, the state court in Tahlequah, Oklahoma, granted the plaintiffs’ motion for partial summary judgment. The ruling said they have shown a “plausible claim for a fortuitous ‘direct physical loss’” and that defendants have not shown that “exclusionary language in the policy applies to the facts.”

An AIG spokesman had no comment and plaintiff attorneys in the case did not respond to a request for comment.

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