The insurer told the court on Monday that government-mandated pandemic restrictions did not cause physical damage to In-N-Out's restaurants that would entitle the company to coverage under its $250 million "all risk" policy with Zurich. The Southern California burger chain filed a breach of contract suit in May after Zurich denied its claims.
In its motion to dismiss the suit, Zurich argued that its policy with In-N-Out contained an exclusion for "loss of use" of property that it said precluded any coverage for losses resulting from government-ordered restrictions. Those restrictions, it said, actually allowed In-N-Out properties to remain in use, for purposes like food preparation and curbside pick up.
In-N-Out, Zurich claimed, "has not alleged, and cannot allege, that the COVID-19 virus, even if present on-site, physically changes the structural integrity of any insured location or renders any location unusable or unfit for human occupancy."
The insurer added that In-N-Out wasn't entitled to coverage because it didn't allege that any of its locations needed to be repaired to fix physical damage. Special coverages for costs related to decontamination and suspended business activity are also unavailable to In-N-Out, Zurich said, because those policies are based on physical damage.
In May, In-N-Out said its policy contained no specific exclusion for viruses or infectious diseases. The eatery added that coronavirus-infected droplets were physical objects that could travel to other objects and damage them. That viral damage, in concert with government shutdowns, forced In-N-Out to close its dining rooms, the chain said.
The company asked for a declaration that its losses were covered by its policy.
In-N-Out is only one of a growing number of eateries that have filed suit against their insurers over pandemic losses. Last week, a California federal judge dismissed a San Diego-area cafe's lawsuit seeking coverage from the Hanover Insurance Group for lost business because of pandemic restrictions. In its motion Monday, Zurich pointed to a number of other California suits in which businesses were denied coverage for pandemic losses.
Success for insurers has not been uniform, however. In January, an Ohio federal judge turned down Zurich after it asserted that more than a dozen steak and seafood restaurants needed to meet a structural damage requirement to be entitled to coverage.
In siding with the restaurants, the judge said that their policies with Zurich could reasonably be read to extend coverage in instances where the policyholder merely loses its ability to use its insured properties for their intended purpose.
Counsel for In-N-Out declined to comment on Zurich's motion, but confirmed the company would oppose it. Counsel for Zurich did not respond to requests for comment.
Zurich is represented by Jayme C. Long, Justin Reade Sarno, Connor M. Scott, Shari L. Klevens and Alanna Clair of Dentons and by Jonathan Gross of Mound Cotton Wollan & Greengrass LLP.
In-N-Out is represented by Robert L. Wallan and Rebecca Tierney of Pillsbury Winthrop Shaw Pittman LLP.
The suit is In-N-Out Burgers v. Zurich American Insurance Co., case number 8:20-cv-01000, in U.S. District Court for the Central District of California.
--Additional reporting by Dave Simpson and Jeff Sistrunk. Editing by Michael Watanabe.
For a reprint of this article, please contact reprints@law360.com.