In the ever-emerging business interruption coverage world, Superior Court Judge Orlando F. Hudson Jr., a North Carolina Judge, ruled that Cincinnati Insurance Company owes a group of restaurants coverage for losses which flowed from a North Carolina mandated COVID-19 shutdown, in the matter of North State Deli LLC et al. v. The Cincinnati Insurance Co., 20-CVS-02569, in the State of North Carolina General Court of Justice for the County of Durham. This ruling appears to be the first decision to hold that a government-ordered shutdown to contain the virus caused a “physical loss.”
In previous blog posts (Recent COVID-19 Business Interruption Decision is a Win for Insurers and What You Need to Know About COVID-19 and Business Interruption Insurance Coverage), we set forth that these cases are being fought on the issue of whether there is a “physical loss” which would trigger coverage under many business policies. Judge Hudson Jr. stated that the term direct physical loss includes an:
inability to utilize…something in the real, material or bodily world, resulting from a given cause.”
In sum, physical damage or alteration is not needed to trigger the coverage.
As the restaurant owners were deprived of the normal use of their property, and losses were suffered due to the virus and government shutdown, the judge granted summary judgment to the restaurants. The restaurants, one of which North State Deli LLC, had filed a claim for declaratory relief.
Cincinnati Insurance argued that the coverage did not apply because of the requirement that there be a physical alteration to the property. The Cincinnati Insurance representative stated that:
the prevailing view by courts around the country has been that an economic loss alone doesn’t qualify as direct physical damage or loss to property, which is the trigger for business interruption coverage.”
This decision is viewed to be a major win for policyholders and the first of such in thousands of similar lawsuits countrywide. It is reported that Cincinnati Insurance plans to appeal. We will keep you apprised of this case and others on this uniquely 2020 issue.