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Law360 (July 2, 2021, 5:03 PM EDT ) A group of Mississippi restaurants told a federal court that their insurer is denying coverage for pandemic losses by trying to improperly limit a provision in their policy that they say covers the suspension of business activities resulting from viral exposure.
University Management Inc. and three other restaurant operators said State Auto Property and Casualty Insurance Co. was attempting to redefine the terms of a virus endorsement to require that a viral contaminant come from within their properties for coverage, according to a Thursday court filing. In a separate filing on Thursday from State Auto, the insurer said it didn't owe coverage because no government pandemic restrictions were issued in response to disease specifically within the restaurants.
The filings were made as the operators and State Auto litigated competing summary judgment motions over coverage for losses the operators' restaurants sustained as a result of Mississippi shutdown orders meant to slow the spread of the coronavirus.
"It is undisputed that [the operators] were required to stop in-restaurant dining and other services in each of the restaurant locations listed in the declarations," the restaurants told the court. "State Auto's attempt to limit reports of contamination to those 'within' or 'emanating' from [the operators'] business locations is unsupported by the policy or law."
In its own filing, State Auto rejected the assertion that it was interpreting the policy in such a way as to ignore its plain meaning. It accused the operators of hiring expert witnesses to provide their own legal interpretation of the endorsement. State Auto said such a strategy was meant to "distract" the court from the plain meaning of the policy.
"While the COVID-19 pandemic has absolutely been devastating to businesses and communities across the globe, [the operators'] arguments cannot take the insurance for the targeted risk of conditions within defined address locations, and turn this into a funding mechanism for societal safety restrictions," State Auto added in its filing.
University and the other operators, who manage restaurants in Columbus, Tupelo, Starkville and Hattiesburg, among other Mississippi cities, first sued State Auto for coverage last year. In an amended complaint, they blasted their insurer for violating express promises to provide coverage for losses resulting from infectious diseases.
"If State Auto has wanted to exclude pandemic-related losses under UMI's policy as many other insurers have done in other policies, it easily could have attempted to do so on the front end with an express exclusion," the restaurant operators said at the time. "State Auto's wholesale, cursory coverage denial is arbitrary and unreasonable, done in a willful, malicious, intentional or grossly negligent manner."
Policyholders have generally fared poorly in federal court disputes over pandemic coverage, according to data compiled by University of Pennsylvania Carey Law School. Over 80% of such cases have been dismissed, the data shows. Earlier this week, for example, a Mississippi federal judge tossed an educational consulting firm's bid for virus coverage after determining that a virus exclusion within its insurance policy from Sentinel Insurance Co. forecloses the firm's coverage claim.
The majority of those suits, however, do not concern policies with express provisions for virus coverage. The Mississippi restaurant operators are arguing that their policy with State Auto covers just that, which would put them in the company of the less than 10% of suits that concern an express or broad virus endorsement, according to the data.
Counsel for State Auto and the restaurant operators didn't immediately respond to requests for comment on their dispute.
State Auto is represented by Michael O. Gwin, William F. Ray and Corey D. Hinshaw of Watkins & Eager PLLC, and by Adam H. Fleischer, Matthew P. Fortin and Lindsey D. Dean of BatesCarey LLP.
The operators are represented by J. Douglas Ford, John D. Brady and Scott R. Hendrix of Mitchell McNutt & Sams PA.
The case is University Management Inc. et al. v. State Auto Property and Casualty Insurance Co., case number 1:20-cv-00138, in the U.S. District Court for the Northern District of Mississippi.
--Additional reporting by Melissa Angell. Editing by Leah Bennett.
For a reprint of this article, please contact reprints@law360.com.
