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N.C. restaurants prevail in COVID-19 business interruption case

Posted On: Oct. 22, 2020 1:31 PM CST


A North Carolina state court judge has ruled in favor of a group of restaurants in pandemic-related business interruption litigation, holding the state’s order to close the restaurants was a covered physical loss under their policies.  

Sixteen restaurants in Buncombe, Chatham, Durham, Orange and Wake counties in North Carolina had filed suit against the Cincinnati Insurance Co. in state court in Durham seeking a declaratory judgment the insurer must replace their lost business income and extra expenses under their coverage, according to the Oct. 9 ruling in North State Deli, LLC et al. v. The Cincinnati Insurance Co., et. al.

The Morris Insurance Agency Inc. in Washington, North Carolina, was also named as a defendant in the litigation. 

The plaintiffs’ primary contention is the government order forcing the restaurants’ closure was a non-excluded “direct physical loss,” the ruling said.

Under the policies’ “ordinary meaning,” plaintiffs suffered a direct physical loss when they “were expressly forbidden by government decree” from accessing their property, the ruling said.

Cincinnati argued that “the policies do not provide coverage for pure economic harm in the absence of direct physical loss to property, which requires some form of physical alteration to property.”

The court said, “Even if Cincinnati’s proffered ordinary meaning is reasonable, the ordinary meaning set forth above is also reasonable, rendering the Policies at least ambiguous,” and any ambiguity should be construed against the insurer.

The policies did not have a virus exclusion and other exclusions were inapplicable, the court said in ruling in the plaintiffs’ favor.

Cincinnati Insurance said in a statement, “We continue to believe that business interruption coverage under our property policy in this case does not apply because there was no structural alteration to property. The prevailing view by courts around the country has been that an economic loss alone doesn’t qualify as direct physical damage or loss to property, which is the trigger for business interruption coverage.”

The restaurants’ attorney, Gagan Gupta, with Paynter Law in Hillsborough, North Carolina, said in a statement that the ruling “affirms that insurance companies like Cincinnati are dodging their duty to provide this coverage.”

The broker’s attorney did not respond to a request for comment.

All but a handful of decisions most of them by state courts have gone against plaintiffs in pandemic-related business interruption cases.

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