On January 19, 2021, the federal court in the State of Ohio was called upon to interpret a business insurance policy where the plaintiff restaurant chain sought “business interruption income losses” under their general liability insurance policy with Zurich Insurance Co. due to the COVID pandemic. The name of the decision is Henderson Rd. Rest. Sys. V Zurich American Ins. Co.
Various provisions of the insurance policy were discussed and rulings issued, all of which struck down the defenses raised by Zurich.
The Court was asked to interpret the following policy provisions: the “civil authority” clause, the “excluded causes of loss” clause; the “microorganism exclusion”; and whether the plaintiff suffered a “physical loss or damage to its property”.
Zurich contended that plaintiff’s economic losses were not covered by the policy because they were not caused by “physical loss or damage to property.” Zurich also contended that the Civil Authority provision did not apply because the Ohio state’s order did not “prohibit access” to plaintiff’s premises. Further Zurich argued that the Civil Authority coverage is inapplicable because the state’s orders did not respond to a direct physical loss of or damage to property located within one mile of the premises (which language appeared in their policy).
Alternatively, Zurich argued that even if there had been a direct physical loss to plaintiff’s property, the “microorganism exclusion” would exclude coverage.
Plaintiff countered, saying that the “microorganism exclusion” does not apply because COVID-19 was not the underlying cause of plaintiff’s loss. Plaintiff acknowledged that the government closure orders were issued in response to COVID-19, but that they were not actually caused by COVID-19. Zurich’s response was that plaintiff’s losses were caused by COVID-19 and that the government orders were issued in direct response to the virus.
Now to discuss the court’s rulings:
Zurich’s policy provided the it will pay for “direct physical loss of or damage to real property.” The court accepted plaintiff’s argument that this provision means something different than damage to the real property and that they lost their real property when the state governments ordered that their properties could no longer be used for their intended purposes – as dine-in restaurants. This was to be so even though the restaurants, during the pandemic, served take out and delivery. The court was satisfied that plaintiff demonstrated that there was a suspension of their operations as the policy defined “suspension” as “the slow down or cessation of your business activities,” which there was. They lost their dine-in customers.
The court also found there to be a “covered cause of loss” which was a requirement for there to be income loss coverage. They relied upon the definition of “covered cause of loss” which said: any “fortuitous cause or event, not otherwise excluded, which actually occurs during the policy period.”
Finally, the court ruled on the “microorganism exclusion” and held that since no COVID-19 was found to be present in the plaintiff’s restaurants, which were closed by government orders, and since this exclusion did not clearly exclude loss of property caused by government closure, it did not exclude their claims for income loss.
I must mention the very fine line that this court has drawn in their policy interpretation. They found that plaintiff’s restaurants were not closed because there was an outbreak of COVID-19 at the properties; “they were closed as a result of government orders.” Because Zurich’s microorganism exclusion did not identify the possibility that, even absent “the presence, growth, proliferation, spread or any activity of “microorganisms” damaging the plaintiff’s properties, the plaintiffs may be required to close their dine-in restaurants due to government orders responding to a public health crisis, the microorganism exclusion did not apply.
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As in most states, all ambiguities in this policy were resolved in favor of the plaintiff-insured. The insurance industry must review the language of their own business general liability policies and and compare them to those in the Zurich policy in this case, before deciding upon the applicability of the above rulings to their own state law and insurance policies.
