On October 6, 2020, Judge Thomas W. Thrash, Jr., Chief Judge for the Northern District Court of Georgia, held that an insurer was not obligated to cover losses two Georgia eateries sustained when they shuttered their dining rooms during the COVID-19 pandemic. Judge Thrash’s opinion is the first of its kind from any court in Georgia.
The eateries filed suit against their insurance carrier for breach of contract and declaratory judgment after the carrier denied coverage for business income losses the eateries suffered when they closed their dining rooms in response to Governor Kemp’s COVID-19 state of emergency executive order.
The eateries’ insurance policy provided business income coverage for losses incurred during the suspension of operations caused by “direct physical loss of or damage to” their property. The policy also provided civil authority coverage for losses incurred when a property other than policy holder’s property was damaged by a covered cause and an action by a “civil authority” prohibits access to plaintiffs’ premises, provided certain conditions are met.
The court found that the policy’s business income provision did not provide coverage for any “direct physical loss or damage to” the eateries’ physical property during the pandemic-related suspension of their business operations. The court emphasized that a contrary ruling would put insurers on the hook whenever any regulation or executive order produced negative effects in business operations, which the court opined would massively expand the scope of coverage under these types of policies.
The court also found no coverage under the civil authority provision of the policy because the eateries had failed to plead that specific conditions had been met to trigger coverage. Among other things, the court held that the eateries failed to plead that a civil authority’s action actually prohibited access to the premises, and the court found that the eateries failed to identify any particular property around the premises that was damaged.
Finally, because the court found that no coverage existed under the policy under the facts alleged, the court did not consider the insurance company’s argument that the policy’s virus and bacteria exclusion barred coverage.
ALSO OF NOTE: Judge Thrash distinguished this case from several similar cases that a federal judge in Missouri recently refused to dismiss pointing out that, in each of those cases, the insureds alleged the COVID-19 virus was physically present on their premises and caused the physical damage that the insureds claimed constitute covered losses. In this case, on the other hand, the eateries alleged the source of their physical loss was Governor Kemp’s executive order, which required them to suspend their business operations due to the coronavirus pandemic.
Henry’s Louisiana Grill, Inc. v. Allied Insurance Co. of America, Civil Action File No. 1:20-cv-2939-TWT, U.S. District Court for the Northern District of Georgia (Oct. 6, 2020).