Key Takeaways

• Louisiana restaurant is seeking coverage under a first-party property policy for future business losses due to government orders in response to the coronavirus pandemic

• Complaint alleges that direct physical loss requirement of coverage is satisfied by the presence of the virus within insured premises and seeks to analogize the loss to claims involving lead or gaseous fumes

• The complaint offers insight into the arguments policyholders are likely to make in seeking coverage for coronavirus-related losses under first-party policies and the key policy provisions likely to be in dispute

Earlier this week, a Louisiana restaurant filed a coverage lawsuit for anticipated business losses due to governmental orders issued in response to COVID-19. This may be among the first coverage lawsuits filed as a result of the virus, but it will by no means be the last, as policyholders try to stake out their positions on the key coverage issues arising from such claims.

In the case, Cajun Conti, LLC v. Certain Underwriters at Lloyd’s, London, filed in Louisiana state court (Orleans Parish), the restaurant seeks coverage under a first-party property policy for future business income losses due to state and local civil emergency orders limiting the number of the restaurant’s patrons and its hours of operation. The lawsuit invokes the policy’s business personal property, business income and extra expense, and ordinance or law coverage. The complaint seeks a declaratory judgment that the policy’s direct physical loss requirement is satisfied and the civil orders trigger the policy’s “civil authority” coverage.

Notably, the complaint asserts that the contamination of the restaurant by the virus qualifies as a direct physical loss because the virus remains on the surface of objects or materials for up to 28 days, with the ability to infect others. The complaint specifically cites in support Louisiana precedent on lead or gaseous fumes, which we anticipate the policyholder will argue provide the pertinent framework for deciding this issue. Also of significance is that, unlike most first-party policies, the policy at issue allegedly does not have an exclusion for losses due to viruses or bacteria (at least as alleged in the complaint). If accurate, the lack of such an exclusion may limit the coverage dispute to whether the direct physical loss requirement is satisfied.

While the case is long from decided, the complaint as filed provides insight into the types of arguments policyholders will make early on in seeking coverage for coronavirus-related losses under first-party policies, as well as which policy provisions will be in dispute. Given the complaint’s arguments relating to the presence of the virus constituting a direct physical loss, along with other claims made in the complaint pertaining to the nature and effect of the virus, we anticipate policyholders will try to rely on expert scientific testimony regarding the virus to support their arguments.

Also significant, it does not appear from the complaint that the insurer actually denied coverage before the insured initiated suit. This raises ripeness and justiciability concerns and suggests policyholders may be angling to get their disputes into court even before the claims-handling process may be completed, particularly where, as here, the policy does not contain a bacteria or virus exclusion.

We will continue to report on this matter and other important COVID-19-related litigation. For more information, please contact:

• Christian A. Cavallo
• Jonathan L. Schwartz
• Or another member of our Global Insurance Services practice