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Law360 (July 1, 2020, 5:50 PM EDT ) A Las Vegas breakfast chain on Wednesday opposed U.S. Specialty Insurance Co.'s bid to dismiss the restaurants' proposed class suit seeking coverage of losses tied to Nevada's COVID-19 shutdown order, saying the insurer is taking an overly narrow view of its policy.
Egg Works LLC of Clark County told a Nevada federal judge that U.S. Specialty is contorting the policy language to misdirect the court that its restaurant recovery insurance coverage is only limited to food, alleging that the insurer's arguments are based on "a flawed foundation."
The restaurant chain argued that its policy with U.S. Specialty covers "any accidental or unintentional ... impairment of an insured product," and the policy said specifically "insured product" includes breakfast service, on-site dining and any food served at its restaurants. The chain owns eight breakfast eateries in and near Las Vegas.
Egg Works filed its proposed class action against U.S. Specialty on April 24, alleging the insurer had wrongfully denied its claim for losses resulting from state closure orders that limited restaurants to takeout and delivery.
U.S. Specialty urged the court to toss the suit in late May, saying the policy was not designed to respond to losses stemming from government-mandated closure, and Egg Works failed to allege that it has suffered any covered event under the policy.
The insurer argued that, for coverage to apply, Egg Works' losses must result "directly and solely" from one accidental contamination of Egg Works' products, any adverse publicity tied to unfounded accusations of contamination, or a third party's threats to tamper with the chain's products for the purpose of extorting money.
In Wednesday's brief, Egg Works said U.S. Specialty mischaracterized the policy to assert that coverage only applies if its restaurants can show that food served was contaminated with COVID19, while the policy definitions show that it covers restaurant services such as on-site dining.
The restaurant chain argued that "accidental contamination" does not only refer to contaminated food, and it asked the court to look at more policy details and specifically the definitions of the "insured events" to determine what is covered.
Egg Works said the underlying policy covers up to 12 months of loss for an "insured event," and a reasonable interpretation of the policy is that it provides for business interruptions for up to a year for situations like the COVID-19 pandemic and related governmental orders. The chain said its profits have significantly plummeted as it was prohibited from normal operations due to the state-mandated closures.
The chain also contended that though the policy excludes coverage for avian influenza virus, it has no exclusion for losses caused by COVID-19. Egg Works said that it has suffered a direct physical loss because it has experienced loss of functionality and operations.
"A condition that renders property unsuitable for its intended use constitutes a direct physical loss," it said in the suit. "Egg Works has been deprived of its ability to derive a profit from on-site dining experience at a great loss — loss as to which it sensibly sought and was provided insurance to guard against."
Egg Works is seeking to represent a class of similarly situated U.S. Specialty policyholders whose business interruption claims under restaurant recovery policies have been denied.
Counsel for the parties did not immediately respond to requests for comment Wednesday.
Egg Works is represented by Gregg A. Hubley, Christopher A.J. Swift, Mike Arias and Alfredo Torrijos of Arias Sanguinetti Wang & Torrijos LLP and Alan Brayton, Gilbert Purcell, James Nevin and Andrew Chew of Brayton Purcell LLP.
U.S. Specialty is represented by Robert S. Larsen, Matthew S. Foy and Jennifer Wahlgren of Gordon & Rees LLP.
The case is Egg and I LLC et al. v. U.S. Specialty Insurance Co. et al., case number 2:20-cv-00747, in the U.S. District Court for the District of Nevada.
--Editing by John Campbell.
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