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Policyholders score some wins in COVID rulings

covid shutdown

A Louisiana appeals court’s refusal to dismiss policyholder litigation in a COVID-19-related business interruption case is a significant ruling and is expected to be influential, policyholder attorneys say.

In a divided opinion, the Louisiana Court of Appeal for the 4th Circuit overturned a lower court last Wednesday and held that a New Orleans restaurant is entitled to business interruption coverage for pandemic-related losses because of ambiguous policy language, according to the ruling in Cajun Conti LLC et al. v. Certain Underwriters at Lloyds, London et al.  

In February 2021, following a bench trial, which was the first trial to be held on the issue, a Louisiana state judge ruled in favor of Lloyd’s of London underwriters in a case filed by the owner and operator of the Oceana Grill in New Orleans’ French Quarter. The policyholder appealed the ruling.

The Louisiana ruling came a day after a New York appeals court also ruled in a policyholder’s favor. The New York State Supreme Court Appellate Division, First Judicial Department, upheld a lower court decision and ruled that the New York Botanical Garden is entitled to COVID-19-related business interruption coverage from an Allied World Assurance Co. Holdings Ltd. unit. 

In the New Orleans case, the majority ruling in the 5-2 decision said the policy “covers the loss of business income due to necessary ‘suspension’ of operations caused by ‘direct physical loss of or damage to the property.’” 

The dissenting opinion stated, “While the majority argues that the language is open to more than one reasonable meaning and is ambiguous, the jurisprudence and plain language of the Policy do not support that contention.”

Courts in numerous other COVID-19-related cases have ruled that businesses that closed operations during government-mandated shutdowns in 2020 did not suffer physical damage and therefore business interruption coverage was not triggered. Many federal appeals courts have upheld the rulings, although relatively few state appeals courts have so far ruled on the issue.

Attorneys in the case did not respond to requests for comment.

Policyholder attorneys who are not involved in the case said the Louisiana ruling is significant.

Attorney Scott D. Greenspan, senior counsel with Pillsbury Winthrop Shaw Pittman LLP in New York, said this is the first policyholder victory from any state appellate court that focuses on the physical loss or damage issue, “so it’s a tremendous victory for policyholders and is likely to result in additional appellate decisions in favor of policyholders.”

Bradley Dlatt, an associate with Perkins Coie LLP in Chicago, said, “State courts are ultimately the arbiters of state law and, for a while now, courts have been hesitant to rule in policyholders’ favor because many federal courts, without benefit of discovery and fully developed case records, started making rulings on whether or not a novel virus could cause loss” or physical damage to property.

The Louisiana case “is a particularly significant one because it came with a fully developed factual record,” Mr. Dlatt said.

Peter A. Halprin, a partner with Pasich LLP in New York, said in a statement that the Louisiana appeals court “applied a bedrock principle of insurance policy interpretation, holding that the phrase ‘direct physical loss of or damage to’ was ambiguous and should thus be construed against the drafter and in favor of coverage.”

The ruling will influence other appellate courts, he said.

Craig Stanfield, a partner with King & Spalding LLP in Houston, said that while the decision is a “bit mixed” because it was not unanimous, it is nevertheless significant, giving policyholders “something to hang their hats on.”