The Supreme Court of North Carolina has given restaurants a shot at collecting damages from their insurers for losses incurred by government-mandated shutdowns during the pandemic.
The state’s highest court ruled last week that sales lost from forced dining-room closings do qualify as “direct physical loss” as routinely defined and covered by property and casualty policies.
Restaurants have argued since the pandemic that their losses should be compensated as a business interruption brought by an extraordinary event, in this case the shutdown of dining rooms by state and local governments.
But insurers had countered successfully in most of the resulting lawsuits that the relevant policies were intended to help restaurants get back in operation after catastrophes that physically affected the business, like a roof being damaged by a hurricane. They argued that the restaurants suffered no physical damage and therefore had no reason to be compensated.
Even lower courts in North Carolina had concurred with that argument, which became the standard defense of insurers in case after case throughout the U.S. But the state’s Supreme Court disagreed with the reasoning, stating that it was almost commonsensical for restaurateurs to expect coverage for business losses even if their facilities were not in need of repair.
The decision also noted that losses from a viral pandemic were not expressly mentioned in policies relevant to the lawsuit as being exempt from coverage.
The suit had been brought by a group of North Carolina restaurateurs. The plaintiffs were insured by either Cincinnati Insurance Co. or a related concern, Cincinnati Casualty Co. The court noted that the plaintiffs’ insurance policy from the carriers were essentially the same.
Groups such as the North Carolina Restaurant & Lodging Association and the National Restaurant Association’s Restaurant Law Center had weighed in with friend-of-the-court briefs supporting the plaintiffs’ contentions.
It is not clear how the decision of a single state’s highest court on the policies of two related insurers might affect pending coverage lawsuits elsewhere. One of the reasons the U.S. Supreme Court takes a case is a multitude of legal interpretations by state supreme courts.
At stake could be hundreds of millions of dollars in sales that were lost by the near-universal closing of restaurant dining rooms and bars during the pandemic. The crisis was officially designated as a national health emergency from Jan. 30, 2020, to May 11, 2023.
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