A Durham court’s decision to grant a business interruption claim due to restaurant losses from pandemic restrictions has been appealed by the insurance company.
Durham restaurant owners Matt Kelly and Giorgios Bakatsias won a lawsuit last month against their insurance provider, Cincinnati Insurance Company. Durham Judge Orlando Hudson ruled that COVID-related losses should be covered by the policy.
A Durham court’s decision to grant a business interruption claim due to restaurant losses from pandemic restrictions has been appealed by the insurance company.
Durham restaurant owners Matt Kelly and Giorgios Bakatsias won a lawsuit last month against their insurance provider, Cincinnati Insurance Company. Durham Judge Orlando Hudson ruled that COVID-related losses should be covered by the policy.
The two restaurateurs own 16 restaurants, mostly in the Triangle, including Mateo Tapas, Vin Rouge, Parizade and Kipos.
Cincinnati Insurance submitted a notice of appeal on Nov. 5, a procedural step signaling the company plans to contest the decision.
Cincinnati Insurance declined a request for comment, other than to confirm the appeal.
‘We’re disappointed’
Gagan Gupta, the lead attorney for the restaurant owners, called the insurance company’s decision to appeal disappointing.
“We think Judge Hudson’s opinion was correct, thoughtful and well-reasoned,” Gupta said in a phone interview. “We’re disappointed Cincinnati Insurance chose to appeal and continue delaying the final decision, given the need is so high and urgent, not only for our clients but all small businesses.”
Now, nearly eight months into a global pandemic that has killed hundreds of thousands of Americans, the restaurant industry continues to face capacity and service restrictions.
In their lawsuit, filed this spring in Durham, Kelly and Bakatsias argue that their policy protects them from losses related to COVID-19, as North Carolina put restrictions on how much of their business could be used.
Cincinnati Insurance argued that business interruption coverage only applies when businesses are closed or altered because of some physical damage.
In his ruling, Judge Hudson said North Carolina’s decision to restrict restaurant capacity to 50% was a physical loss and covered by the policy.
“Plaintiffs were expressly forbidden by government decree from accessing and putting their property to use for the income-generating purposes for which the property was insured,” Hudson wrote. “These decrees resulted in the immediate loss of use and access without any intervening conditions. In ordinary terms, this loss is unambiguously a ‘direct physical loss,’ and the Policies afford coverage.”
The appeals process could be a lengthy one because of COVID-19-related delays in the courts, Gupta said. He hopes for a decision before the end of next year.
‘This ... could cripple the insurance industry’
In Cincinnati Insurance’s response to the court’s ruling last month, the company pointed to a letter from North Carolina Insurance Commissioner Mike Causey, which said business interruption insurance wasn’t meant for a pandemic, and that covering those claims could be catastrophic for the industry, with payments in the hundreds of billions of dollars.
“This type of loss could cripple the insurance industry causing many companies to fail, which would put the protection of homes, automobiles, and businesses at risk,” Causey wrote. “We can’t legally force insurers to cover a risk which they didn’t intend to cover and which, in some instances,was specifically excluded in the policy.”
Gupta said a broad precedent isn’t likely to be set, as policies often differ in their coverage. Most business interruption lawsuits across the country have been dismissed because the policy included a virus exemption.
But Gupta said intent isn’t a matter for the court, only what’s written in each policy.
“It’s a bit of a doomsday scenario that just isn’t going to materialize based on policy language that exists,” Gupta said of any precedent his case might set. “The intention of the insurance industry is irrelevant, only what the policies actually state. The burden is on providers to craft clear policy language. Even if they did not intend what the policy language states, the policy language is what it is.”
The University of Pennsylvania Law School is tracking COVID-related insurance lawsuits from across the nation, so far counting more than 1,200. The lawsuit from Kelly and Bakatsias is thought to be the only suit so far where a court has found COVID losses covered by a policy.
“As restaurant owners, we’re navigating businesses that probably aren’t going to be able to open under the current conditions,” Kelly said last month following the Durham court’s decision. “This definitely gave us some hope.”