11.25.2020 | Articles

Connecticut Court Weighs In On The Question Of Business Interruption Coverage

By Kelly E. Petter

The District of Connecticut released its first pandemic related business interruption decision in which the carrier’s motion to dismiss was granted. Federal Court Judge, the Hon. Michael P. Shea, issued his decision in LJ New Haven, LLC d/b/a Lenny & Joe’s Fish Tale v. AmGuard Insurance Company on December 21, 2020 granting the carrier’s motion to dismiss the class action complaint filed against it and holding that the virus exclusion applies to bar coverage.

Judge Shea noted that “[i]n March 2020, an executive order issued by Governor Ned Lamont (the “Order”) in response to the COVID-19 pandemic mandated that restaurants in Connecticut cease in-person dining operations to help prevent the further spread of the disease.” The plaintiff restaurant “sustained a loss of business as a result” and sought business interruption coverage from its insurer. The Court relied upon plaintiff’s complaint, as well as the policy and the Order, which were incorporated into the complaint in rendering its decision. The Order, upon which plaintiff relies, included the following explanation:

“Data from published studies” have shown that “COVID-19 is primarily transmitted from symptomatic people to others who are in close contact through respiratory droplets, by direct contact with infected persons, or by contact with contaminated objects and surfaces.” Id. ¶ 23. Specifically, a study “in The New England Journal of Medicine,” showed that “COVID-19 was detectable in aerosols for up to three hours, up to four hours on copper, up to 24 hours on cardboard, and up to two to three days on plastic and stainless steel. All of these materials are used in the preparation and service of food by restaurants.” Id. ¶ 26 (footnote omitted).

The Order limited restaurants to service of food and non-alcohol beverages for off-premises consumption, which plaintiff contended prevented use of the property for its intended purpose. Plaintiff did not allege that its property was contaminated by the virus, and its brief in opposition to the motion to dismiss specifically disavowed any notion of contamination stating “[h]ere, there has been no infestation or contamination of Fish Tale’s property by coronavirus, nor are there any allegations in the Amended Complaint that would support such an assumption. Fish Tale’s loss was not caused by [a]n infestation or contamination of coronavirus, or any other virus, at Fish Tale’s property.” Plaintiff sought coverage for its losses under the Business Income Coverage, Civil Authority Coverage, and Extra Expense Coverage afforded by the policy. The policy excluded from coverage loss or damage caused directly or indirectly by “[a]ny virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” Defendant carrier moved to dismiss the class action complaint on the grounds that: 1) the Virus Exclusion foreclosed coverage; 2) plaintiff did not sustain a “direct physical loss” to trigger coverage under the Business Income or Extra Expense Coverages; and 3) plaintiff did not sustain “damage to property” to trigger the Civil Authority Coverage. The Court did not consider whether coverage was triggered, because it found that coverage was excluded pursuant to the Virus Exclusion.

The Court reasoned that the combination of the phrase “caused directly or indirectly” and the anti-concurrent causation language that preceded the exclusion stating “[s]uch loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss” rendered “the causal scope of the virus exclusion broad and suggests that it should apply as long as a virus acts as a link somewhere in the causal chain producing the loss or damage at issue.” The Court held that the causal scope was easily satisfied under the facts of the case where the Order traced to the emergence of the virus and the need to stop its spread. The Court rejected plaintiff’s attempt to trace the cause of its loss to the Order noting that “while the virus may not be the ‘direct’ cause of the curtailment of Plaintiff’s operations and its consequent loss of income, it is surely an indirect cause.” The Court further reasoned that, even a narrow interpretation of the Virus Exclusion demanding that the virus must be a “significant,” “substantial,” or “near” indirect cause would be satisfied in this case where the Order and the virus are interlocking if not intertwined.

The Court also rejected plaintiff’s attempt to read into the policy an “onsite” or “contamination” restriction to the Virus Exclusion, which the Court found “appears nowhere in the terms of the policy.”

If you have any questions or would like further information about this decision or Business Interruption claims, please contact Attorney Kelly Petter at: 860-247-0644 or kpetter@hassettanddonnelly.com

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