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Law360 (March 17, 2020, 5:02 PM EDT ) A New Orleans restaurant on Monday filed a first-of-its-kind lawsuit asking a state judge to hold that its property and business interruption policy with underwriters at Lloyd's of London will cover its losses due to government-mandated closures tied to the outbreak of the novel coronavirus.
Oceana Grill, which is in New Orleans' French Quarter, argued that its "all risk" policy with the Lloyd's underwriters should kick in under the circumstances, noting that the policy doesn't contain any provisions excluding coverage for losses stemming from viruses or global pandemics.
"A declaratory judgment determining that the coverage provided under the policy will prevent the plaintiffs from being left without vital coverage acquired to ensure the survival of their business should operations cease due to a global pandemic virus and civil authorities' response," the restaurant's attorneys wrote.
At the time the suit was filed, Louisiana Gov. John Bel Edwards had already issued an order barring public gatherings of 250 or more, with no exception for restaurants. In addition, New Orleans Mayor LaToya Cantrell had directed the city's restaurants to curtail seating capacity.
Later on Monday evening, however, both Edwards and Cantrell issued new proclamations saying restaurants may only offer carry-out, drive-through and delivery services, while the governor further limited public gatherings to no more than 50 people.
In its suit, Oceana Grill noted that its policy with the Lloyd's underwriters requires the existence of a "direct physical loss" to property for coverage to apply. According to the restaurant, that requirement is satisfied by the coronavirus pandemic, given that the virus can remain on surfaces for days. Both Edwards and Cantrell cited concerns over possible physical damage to properties to support their restrictions.
"The virus is physically impacting public and private property, and physical spaces in cities around the world," Oceana Grill's attorneys wrote. "Any effort by Lloyd's to deny the reality that the virus causes physical damage and loss would constitute a false and potentially fraudulent misrepresentation that could endanger policyholders and the public."
John W. Houghtaling II of Gauthier Murphy & Houghtaling LLC, who represents Oceana Grill, told Law360 on Tuesday that the issues presented in his client's suit are of vital importance, saying government restrictions have already had a "devastating effect" on New Orleans' restaurant industry.
"A ruling finding coverage would not only apply to this restaurant in New Orleans, it would be persuasive authority for cases involving identical policies held by other restaurants and businesses," Houghtaling said.
The Lloyd's underwriters could not be reached for comment Tuesday.
However, Zelle LLP partner Shannon O' Malley, who has represented insurers including underwriters affiliated with the Lloyd's market, told Law360 that it "does seem premature to file suit even before a claim is filed with the insurance company." O'Malley said disputes over business interruption and civil authority coverage tied to the coronavirus outbreak should be analyzed on a case-by-case basis depending on the language of each policy.
"While it appears that some state governments may try to legislate what constitutes physical loss or damage, any such effort to rewrite the terms of insurance policies will likely see a strong constitutional challenge," she said. "Like any contract, the terms of the agreement between the parties should control."
O'Malley also predicted that coronavirus-related civil authority orders will "be analyzed in the same way as those issued following 9/11 and major hurricanes."
"If an order is issued to avoid future problems that have nothing to do with physical loss or damage, courts have held that this is insufficient to trigger civil authority coverage," she said.
Oceana Grill is represented by John W. Houghtaling II, Jennifer Perez and Kevin Sloan of Gauthier Murphy & Houghtaling LLC and Daniel E. Davillier of Davillier Law Group LLC.
Counsel information for the Lloyd's underwriters was not immediately available.
The case is Cajun Conti LLC et al. v. Certain Underwriters at Lloyd's London et al., case number unavailable, in the Civil District Court for the Parish of Orleans, State of Louisiana.
--Editing by Kelly Duncan.
For a reprint of this article, please contact reprints@law360.com.
