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Broker wins ruling to escape COVID-19 business interruption suit

COVID closure

A federal judge on Tuesday dismissed a restaurant group’s suit against its insurance broker, ruling that the damages that the policyholder sought for alleged negligence in placing business interruption coverage were not recoverable under Texas law.

In the case Vandelay Hospitality Group LP d/b/a Hudson House v. The Cincinnati Insurance Co. et al, the Dallas-based policyholder, which operates three restaurants, sued its insurer for denying its claim for income lost during forced lockdowns during the coronavirus pandemic and added its broker, Swingle Collins & Associates, to the suit.

Vandelay alleged that Dallas-based Swingle Collins had said that the Cincinnati Insurance policy would cover the restaurants for closures related to a virus or pandemic.

In its motion to dismiss, Swingle Collins argued that the suit was barred because Vandelay’s “alleged ‘pecuniary loss’ damages are the very same damages sought against Cincinnati in its breach of contract claim.”

Ruling on Swingle’s motion, U.S. District Court Judge Sidney A. Fitzwater, of the Northern District of Texas in Dallas, said Vandelay failed to state a “plausible claim upon which relief may be granted.”

Judge Fitzwater said Vandelay was seeking to recover the amount of coverage it allegedly should have received under its policy.

“Coverage measures Vandelay’s ‘benefit-of-the bargain’ damages, not anything paid ‘out-of-pocket’ in reliance on Swingle Collins’ alleged misrepresentations,” court papers say.

Jason H. Friedman, an attorney at Friedman & Feiger LLP in Dallas, who represents Vandelay, said the restaurant group will file a motion to reconsider.

An attorney for Swingle Collins did not immediately return a call for comment.

More insurance and risk management news on the coronavirus crisis here