On January 19, 2021, an Ohio Federal District Court granted summary judgment to several restaurant policyholders, determining that they were entitled to business interruption coverage for closures caused by COVID-19. See Henderson Rd. Rest. Sys., Inc. v. Zurich Am. Ins. Co., No. 1:20-CV-1239, 2021 WL 168422 (N.D. Ohio Jan. 19, 2021). Relying on contract ambiguities that it had to interpret in favor of the policyholders, the court determined that the business income policies provided coverage for the plaintiffs’ in-person dining closures resulting from state orders.
As with most of the cases addressing this type of coverage, the court had to determine whether COVID-19-related closures fell within the initial coverage grant for the policy. The key language for this determination in nearly all these cases is whether the business interruption was caused by “direct physical loss or damage” to the covered premises. Most courts have determined that closures resulting from the pandemic were not based on physical loss or damage to the covered property. In Henderson Road, however, the court noted a small but critical distinction in the relevant policy, which stated that there must be “direct physical loss of or damage to real property” (emphasis added). The court employed the rule of contract construction that all words must have meaning and, therefore, there must be a difference between “physical loss of” and “damage to” real property.
The plaintiffs argued that, even if there was no damage to the property, “physical loss of … real property” could include “when the state governments ordered that the properties could no longer be used for their intended purpose.” The court agreed that the language was susceptible to that interpretation. Because all ambiguities must be construed in favor of the insured, the court ruled, as a matter of law, the restaurant closures did result in “direct physical loss of … real property.” Therefore, the policy covered losses from state-mandated COVID-19 restaurant closures.
The policy also included a “microorganism” exclusion, but the court determined the exclusion did not apply. Notably, the parties stipulated that “none of Plaintiffs’ Insured Premises were closed as a result of the known or confirmed presence of SARS-CoV-2 or COVID-19 at any of the Insured Premises.” Normally, such a stipulation would favor insurance carriers because plaintiffs have commonly (though often unsuccessfully) relied on the presence of the virus to satisfy the requirement of physical loss or damage to the property. In Henderson Road, though, the plaintiffs argued that government orders caused their closures, rather than direct presence of the virus. Under the plaintiffs’ argument, they did not need direct presence of the virus to satisfy the coverage grant. But the stipulation did bar Zurich from using the microorganism exclusion to preclude coverage.