US judge allows BI case against Lloyd's to proceed

Lloyd's of London lost its initial bid to dismiss a COVID-related business interruption (BI) lawsuit brought by a Philadelphia bar and restaurant, according to a report by Insurance Journal.

Judge Gary Glazer of the Court of Common Pleas in Philadelphia turned aside preliminary objections to the suit raised by Lloyd’s, finding that it would be ‘premature’ for the court to decide on the plaintiff’s claims at a time when “the law and facts are rapidly evolving in the area of COVID-19 related business losses”.

The suit was brought by Taps & Bourbon on Terrace against underwriters at Lloyd’s and against Main Line Insurance Office, an insurance agency in Paoli. In addition to seeking coverage for loss of income and extra expenses, it also sought damages in excess of $50,000 plus legal costs against each defendant. However, on the same day that he advanced the claims against Lloyd’s, the judge also removed the claim against Main Line from the suit.

The ruling is one of the few out of more than a thousand business interruption lawsuits with an early ruling favouring the plaintiff. Judges have more often granted insurers’ motions to dismiss. Earlier this month, however, a judge in North Carolina’s Durham County ruled that closure orders that restricted the use of a group of 16 restaurants constituted a ‘direct physical loss’ that was covered by the policy.

The Philadelphia restaurant’s complaint filed in July argues that the civil order requiring businesses to close during the coronavirus pandemic resulted in a loss that is covered under business interruption, extra expense and food contamination parts of the policy. The plaintiff alleged that its inability to inhabit its properties and conduct business amounted to a direct physical loss for insurance purposes.

“Plaintiff was not permitted to utilise the functionality of its property because of a close logical, causal, or consequential relationship with an earlier event – the closure orders. The business operation of plaintiff’s businesses ceased because of the act of ‘civil authority’. The inability to inhabit the property at issue, and the prohibition of plaintiff to collect revenue/income, equates to a direct physical loss for insurance purposes,” the complaint said.

Virus exclusion

The policy did contain a virus exclusion, but the plaintiff claimed that this was removed by another endorsement. It also claims that the virus exclusion does not apply anyway because the virus was never in its property and did not cause the damage.

“Plaintiff admits that there is no proof that the COVID-19 virus was present at the insured premises. It is precisely because there is no proof of the virus being present at the property that the virus exclusion cannot apply,” the complaint said.

The complaint further argued that the virus exclusion is “subject to more than one reasonable interpretation” and that there “must be some limitation on the virus exclusion, otherwise these exclusions could theoretically apply to every ‘direct physical loss’ caused directly or indirectly by the suspected presence of a virus.” Lloyd’s denied the claim, arguing that there was no ‘direct physical loss’ as the policy required. It also claimed that the civil authority provision did not apply but the virus exclusion did.

Lloyd’s also maintains that Taps & Bourbon was not barred from accessing its property. Taps & Bourbon also argued that its policy’s food contamination endorsement also applies, an interpretation rejected by Lloyd’s.

Source: Asia Insurance Review