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FMG attorneys Phil Savrin and Shawn Bingham secured a favorable outcome for Allied Insurance Company of America who was sued for rejecting a claim for lost business income after the insured shuttered its restaurant during the COVID-19 pandemic. The insured, a Cajun restaurant in the Atlanta area, decided to close its dining room after the governor issued an Executive Order that declared a state of emergency in March 2020. With losses continuing to mount, the restaurant sought coverage under its insurance policy that applied where business operations are suspended due to a “direct physical loss of or damage to” the property. When Allied determined that the coverage terms were not met, the restaurant filed a lawsuit seeking damages exceeding $900,000.
FMG’s lawyers moved to dismiss the lawsuit in which they asked the judge to confirm that Allied had applied the policy provisions correctly. The main argument was that the policy language requires a physical change in the property that prevented the business from operating for coverage to apply, such as a storm that destroys the roof. In this case, in contrast, the restaurant decided to close down its operations completely due to a concern for spreading the infection. Even if the decision to close was influenced by a government order, Allied argued, there was no physical change in the property preventing the continued operation of the business.
Allied filed its motion in July 2020 before any courts had issued decisions on coverage for business losses related to COVID-19. Since then, a number of courts have found for insurers based on either the absence of a “direct physical loss” to the premises as the cause of the closures or an exclusion for losses caused by a virus. No court has found coverage for business losses under the language in Allied’s policy although some judges have allowed the claims to proceed for factual development.
Allied was handed a victory, however, on October 6, 2020 when the chief judge of the Northern District of Georgia granted the motion and dismissed the restaurant’s lawsuit. He reasoned that despite the ongoing pandemic, there was no suggestion that there was a physical change in the restaurant’s property let alone one that “directly” caused the closure: “Every physical element of the dining rooms—the floors, the ceilings, the plumbing, the HVAC, the tables, the chairs—underwent no physical change.” As such, he found the insured’s claim that it physically lost the ability to operate “exceeds any reasonable bounds of possible construction, pushing the words individually and collectively beyond what any plain meaning can support.” He further ruled that the decision to close the restaurant was not a direct cause of the government order as the decision was made “by intervening persons as a result of intervening conditions.”
The case is captioned Henry’s Louisiana Grill, Inc. v. Allied Insurance Company of America, United States District Court for the Northern District of Georgia, Civil Action Number 1:20-cv-2939-TWT. If an appeal is taken it would be to the United States Court of Appeals for the Eleventh Circuit.
FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients. Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments. For more information about the Task Force, click here.
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