According to the complaint filed Wednesday, Proper Ventures LLC was forced to shutter its Proper 21 restaurant after Mayor Muriel Bowser on March 16 signed an order prohibiting table seating at any restaurants or taverns in the city, effectively cutting off 95% of the sports bar's business.
As a result, Proper Ventures had to furlough most of its employees and close up shop, after which it put in a claim with Seneca for business interruption insurance, according to the complaint. The restaurant needs the coverage to survive past the shutdown, according to the complaint.
Proper Ventures said Seneca denied the claim days later on the basis that the property did not suffer physical damage that caused the closure, and that the COVID-19 pandemic falls under a virus exclusion in the policy that bars coverage for loss or damage caused by any virus, bacterium or other microorganism that induces physical illness.
Proper Ventures, however, claims in the suit that it is not the virus but the mayor's order that closed down the business, arguing that this triggers a civil authority clause in the policy that provides coverage if access to the building is barred by government action.
In the suit, which also names the District of Columbia as a defendant, the restaurateur asked the court for a declaration that the mayor's order prohibited the restaurant from remaining open and that the loss of business triggers its policy. In addition, Proper Ventures accused Seneca of breach of contract for the denial of coverage.
Christopher LaFon of The Veritas Law Firm, representing Proper Ventures, said that insurance carriers often deny coverage in circumstances in which courts eventually find coverage is appropriate, saying that coverage is warranted in this case because the mayor's order is the cause of the business losing access to its physical space. He said courts in D.C. interpret exclusions narrowly, and he believes the virus exclusion would not negate coverage that's otherwise available.
"People and businesses spend millions on insurance so that they are protected from unanticipated, catastrophic loss," LaFon told Law360 on Thursday. "None of us expected that 2020 would begin with the mayor of our capital prohibiting dining in at every restaurant in the District, but that is an unexpected event causing the loss of income for which Seneca provides coverage through its policy with Proper 21."
Representatives for Seneca and D.C. could not immediately be reached for comment Thursday.
Proper Ventures joins a growing number of businesses taking their insurers to court over denials of business interruption coverage stemming from the COVID-19 pandemic, including an Illinois dental clinic, a nonprofit professional theater in Indiana, a Florida sports bar, a scuba shop in the Florida Keys and a group of Texas movie theaters.
Many of those complaints argued that coverage should be granted in part because their policies did not include virus exclusions, whereas Proper Ventures argues it should be granted coverage despite that exclusion because the mayor's order, not the virus itself, caused the shutdown.
Proper Ventures is represented by Andrew Kline, Scott H. Rome, Christopher L. LaFon and Anna R. Margolis of The Veritas Law Firm.
Counsel information for Seneca and D.C. was not immediately available.
The case is Proper Ventures LLC v. Seneca Insurance Co. Inc. et al., case number unavailable, in the Superior Court of the District of Columbia.
--Editing by Alanna Weissman.
For a reprint of this article, please contact reprints@law360.com.