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The owner of two central Michigan restaurants can’t recover revenue lost during the coronavirus lockdown under a business interruption policy because the properties did not sustain a direct physical loss, a state court judge ruled last week.
The decision is one of the first coronavirus-related court rulings among dozens of cases filed by restaurants and other businesses over the past three months seeking business interruption coverage.
In the case Gavrilides Management Co. et al. vs. Michigan Insurance Co., Joyce Draganchuk, a state court judge in Mason, Michigan, on July 1 granted summary judgment to Michigan Insurance, a Grand Rapids-based unit of Donegal Group Inc. The insurer had filed a dismissal motion after it was sued for insurance coverage by Gavrilides Management, which operates the Soup Spoon Café in Lansing and The Bistro in Williamston.
According to a video recording of the ruling, the judge ruled that under the wording of the policy, the restaurants would have to suffer “direct physical loss or damage” as a result of the coronavirus for coverage to apply.
Direct physical loss must be something “with material existence, something that is tangible, something … that alters the physical integrity of the property,” the judge said.
The restaurants’ complaint alleged a loss of business due to government-ordered business restrictions after the coronavirus outbreak in March, but it did not allege any compensable physical damage due to the virus, she said.
“The plaintiff just can’t avoid the requirement that there has to be something that physically alters the integrity of the property,” the judge said.
According to the judge, Gavrilides seemed to allege that the physical requirement of the policy was met because customers could not physically use the dine-in services.
“But that argument is just simply nonsense and it comes nowhere close to meeting the requirement that there has to be physical alteration” to the integrity of the building, she said.
Numerous other businesses have sued their insurers for business interruption coverage using similar arguments. Most of the cases are still pending, but in a ruling in May in New York, a judge ruled in favor of an insurer in a suit filed by a magazine publisher.
More insurance and risk management news on the coronavirus crisis here.