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Travelers scores victory in COVID-19 business interruption case

covid shutdown

A unit of Travelers Cos. Inc. won the dismissal of a coronavirus-related business interruption suit on Friday, adding to the growing list of court decisions finding business disruptions stemming from the pandemic don’t constitute property loss or damage.

In 10E LLC v. Travelers Indemnity Co. of Connecticut et al. a federal court in Los Angeles granted Travelers’ motion to dismiss a suit filed by the owners of 10E, a local restaurant that sought coverage for income lost as a result of mandated lockdowns that began in March following the COVID-19 outbreak.

The restaurant argued that the inability to use its property during the lockdowns amounted to direct physical loss or damage under the terms of its commercial insurance policy issued by Travelers.

The court ruled, however, that in previous insurance cases California courts had held that physical loss occurs when a property undergoes a “distinct, demonstrable, physical alteration.”

According to the ruling, “An insured cannot recover by attempting to artfully plead impairment to economically valuable use of property as physical loss or damage to property.”

10E was represented by Mark Geragos, a well-known Los Angeles trial lawyer who is also suing Travelers for business interruption coverage he alleges his law firm is entitled to due to the lockdowns and for damage to commercial property he owns.

Mr. Geragos did not immediately respond to a request for comment.

The ruling is the latest in a series of COVID-19 business interruption rulings and legal proceedings that largely have favored insurers. Last week, for example, a Miami-based magistrate recommended that a Florida U.S. district court reject a COVID-19 business interruption coverage case filed by an Italian restaurant against an XL Group Ltd. unit.

More insurance and risk management news on the coronavirus crisis here