Cleveland Court Finds in Favor of Restaurants on COVID-19 Business Interruption Claims

By Jim Sammon & Brett Krantz

In a matter decided this week, a judge in the Northern District of Ohio granted summary judgment in favor of the insureds, Plaintiff Henderson Road Restaurants (a group that includes the Hyde Park Prime Steakhouses). The Court found that the Zurich business interruption insurance policy covered Henderson Road’s COVID losses – an issue we discussed in our previous article. The Court’s opinion went against what it referred to as “the growing consensus among federal courts” that have dismissed COVID-19 business interruption claims because the insured parties did not sufficiently allege or prove “physical loss or damage.”

Zurich argued that the business interruption coverage under the policy required “physical loss or damage” which here meant permanent dispossession, and that the state’s orders under COVID-19 restrictions did not permanently dispossess plaintiffs of their property. Moreover, the policy contained a microorganism exclusion, and that COVID-19 is a microorganism.

The plaintiff argued that the loss of their properties was caused by the government closures and that those closures (in the absence of any presence or outbreaks at their restaurants) are not excluded by the overall policy or the specific microorganism exclusion.

The Court found that the plaintiffs had experienced a loss of their real property – property which they had been using for dine-in customers. In following Ohio law regarding strict interpretation of insurance contract language against the insurance carrier, the Court used Webster’s dictionary to define the terms that were undefined under the policy: the terms “physical,” “loss,” “damage” and “property.”

Based on this, the Court found that the restaurant plaintiffs showed that their business operations were suspended by direct physical loss of or damage to property at the premises. Further, such loss ended or would end when the state’s restrictions that were caused by COVID-19 are lifted.

The Court recognized and distinguished contrary decisions from a myriad of federal courts including Texas, California, Illinois and a fellow judge in the Northern District of Ohio. The Court provided the ability for the parties to seek an interlocutory appeal of the decision to the Sixth Circuit Court of Appeals in Cincinnati. It is expected that Zurich will appeal the decision.

The decision, which is approximately the fourth opinion anywhere in the country finding business interruption coverage related to COVID shutdowns, provides a slight glimmer of hope for small and large businesses alike who have been ravaged by the loss of business income over the past year of COVID-19 related restrictions.