On Monday, March 16, 2020, a prominent New Orleans restaurant became the first business nationwide to file suit against an insurance carrier for losses sustained as a result of the novel coronavirus (“COVID-19”). In Cajun Conti, LLC et al. v. Certain Underwriters at Lloyd’s of London, et al. (La. Dist. Court, Orleans Parish), the Plaintiff, Oceana Grill (“Oceana”), seeks a declaratory judgment requiring Lloyd’s of London (“Lloyd’s”) to provide coverage under an “all risk” policy for losses incurred as a result of the closure of the restaurant in an effort to curb the spread of COVID-19.

Where There Is Loss, There May Be Insurance Coverage

Oceana Grill is a restaurant located on the corner of Bourbon and Conti Streets in the heart of the French Quarter of New Orleans. On a busy day, the restaurant can accommodate up to 500 guests, and often hosts weddings and other private events. Oceana Grill is open from 8:00 a.m. to 1:00 a.m. every day of the year.

In light of the COVID-19 crisis, the Governor of Louisiana has issued an order banning gatherings of 250 or more people in a single space. Additionally, the Mayor of New Orleans has directed that all full-service restaurants must close by 9 p.m. daily and limit the number of guests to 50% of the restaurant’s overall seating capacity. Oceana Grill anticipates that further limitations on their operations will be enacted in the coming days and weeks. Clearly, Oceana Grill (like many other restaurants across the country) is expecting to incur a significant loss of revenue. As a result, Oceana is looking to its insurance carriers for coverage.

An “all risk” insurance policy is a type of policy that automatically covers any risk that is not specifically excluded. In its’ Complaint, Oceana argued that because their policy did not exclude losses that arise as a result of a virus or global pandemic, the restaurant is entitled to coverage. Specifically, Oceana asked that the Court “affirm that because the policy provided by Lloyd’s does not contain an exclusion for a viral pandemic, the policy provides coverage to plaintiffs for any future civil authority shutdowns of restaurants in the New Orleans area due to physical loss from Coronavirus contamination.”

One of the key issues in the Oceana Grill lawsuit will be whether the restaurant incurred “direct physical loss or damage” as a result of COVID-19. Typically, “all risk” policies only provide coverage for physical property damage.

Insurance Coverage for New Jersey Coronavirus Losses

New Jersey businesses seeking coverage under similar types of policies may be in luck: several recent decisions have broadly interpreted the term “physical damage” in favor of coverage. For example, in Wakefern Food Corp. v. Liberty Mutual Fire Ins. Co., the Court determined that the term “physical damage” was ambiguous and should be construed in favor of coverage where a grocery store suffered loss following a blackout. Similarly, in Gregory Packaging Inc. v. Travelers Prop. Cas. Co. of Am., the District Court for the District of New Jersey found that “courts considering non-structural property damage claims have found that buildings rendered uninhabitable by dangerous gasses or bacteria suffered direct physical loss or damage.”

While it is too early to determine whether the court in Louisiana will side with the restaurant or the carrier, this case highlights the need for all businesses to take immediate steps to carefully evaluate their insurance coverage. If there is a possibility that coverage is available, companies should promptly notify their carriers, take steps to minimize damage (where possible), and diligently quantify and categorize their losses.