Ohio restaurateur wins court claim to business interruption coverage

A federal court decided that a microorganism exemption may not hold, and that physical damage need not be sustained.
Photograph: Shutterstock

A federal court has ruled that a multi-concept restaurant group based in Ohio has a legitimate claim on its business interruption insurer for sales lost while operations were shut down during the pandemic.

In a decision with implications for a multitude of similar lawsuits elsewhere, the U.S. District Court for the Northern District of Ohio ruled that the plaintiff, Henderson Road Restaurant Systems, had a reasonable claim despite a provision in the disputed policy that specifically denies coverage for shutdowns forced by a microorganism. Henderson Road had sought compensation for what it lost after Ohio Gov. Mike DeWine ordered restaurants to close their dining rooms in mid-March.

The court decided that the immediate cause of the shutdown was the government directive, not the coronavirus, and hence the microorganism provision did not preclude consideration of repayment.

The decision also states that the policy provided by Zurich American Insurance likely applied even though the covered restaurants did not suffer physical damage. As Zurich noted in its defense, a number of courts have cited that lack of structural damage as grounds for denying restaurants’ claims to business interruption compensation.

The Ohio federal court agreed with the plaintiffs that physical damage extends to “being disposed of covered property,” or being denied its use. The plaintiff successfully argued that dispossession extended to a significant slowdown in business, as its restaurants experienced when they were forced to switch exclusively to takeout and delivery.  The facilities eventually closed because that business was so insignificant.

The court did not specify what amount should be paid to Henderson Road, and noted that its decision on selected matters decided in the case could be appealed by Zurich because a dollar figure was not set.

Like Henderson Road, many restaurant operators have discovered that their business-interruption insurers are refusing to provide compensation under the policies because their operations were not physically harmed and a provision specifically excludes losses caused microorganisms. The insurers note that the coverage has traditionally been used to protect businesses from acts that wreck the premises, such as flooding or a vehicle crashing into the storefront.

Henderson Roads operates restaurants in Ohio, Pennsylvania, Michigan, Indiana and Florida under a variety of names, including Hyde Park Prime Steakhouse and Hyde Park Chop House.


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