U.S. District Judge Joseph Goodwin said that Bluegrass LLC, which owns three restaurants in Charleston, West Virginia, was not able to allege that the restaurants experienced tangible physical alterations to trigger coverage, or that civil authority closure orders barred access to its properties.
"While I am sympathetic to the plight of small businesses affected by the COVID-19 pandemic, I am unable to find that a regulatory shutdown order is a 'physical loss or damage' as contemplated by the plain language of the parties' contract," the judge said.
Bluegrass failed to demonstrate "a nexus between physical property damage and the state's actions," as the eateries operated on a limited or takeout-only basis after state-mandated closures in March, Judge Goodwin said.
According to the suit, Bluegrass owns the Tricky Fish, Starlings and the Bluegrass Kitchen in Charleston. Tricky Fish shut down in mid-March and reopened in late May, Starlings offered takeout after March and resumed normal operations in May, while Bluegrass offered takeout initially and suspended business in May. After Bluegrass filed its claim for revenue loss, State Auto denied coverage, asserting that the restaurants did not experience direct physical loss or damage required for coverage.
"To find that a physical loss or damage has taken place at the covered Bluegrass properties under these conditions would be to ignore the reality that many restaurants and cafes have continued to operate during the pandemic," Judge Goodwin said in the order.
Bluegrass has argued that the presence of COVID-19 in the restaurants created a physical loss by making its covered properties unusable and that a direct physical loss does not require any physical alteration.
Judge Goodwin disagreed Tuesday, citing case law that says "even actual presence of the virus would not be sufficient to trigger coverage for physical damage," since COVID-19 can be cleaned from a property surface with disinfectant.
Additionally, the judge referenced Elegant Massage LLC v. State Farm Mut. Auto. Ins. Co.
, saying that although a Virginia federal court recently held that "direct physical loss" should be interpreted in favor of the insured to grant coverage because Virginia case law created ambiguity in the term, he finds "no such spectrum of interpretation in West Virginia law.""There is no such ambiguity in this case. West Virginia law requires me to give the language in an insurance contract its plain and ordinary meaning," Judge Goodwin added.
Representatives for the parties could not be immediately reached for comment.
Bluegrass is represented by David R. Barney Jr. and Kevin W. Thompson of Thompson Barney, and Gary F. Lynch and Kelly K. Iverson of Carlson Lynch.
State Auto is represented by Adam Fleischer, David Buishas and Elise D. Allen of BatesCarey; and Lee Murray Hall and Sarah A. Walling of Jenkins Fenstermaker PLLC.
The case is Bluegrass LLC v. State Automobile Mutual Insurance Company, case number 2:20-cv-00414, in the U.S. District Court for the Southern District of West Virginia.
--Editing by Gemma Horowitz.
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