As Indiana businesses await key rulings on how courts will address coverage of business interruption insurance, a North Carolina state court recently issued an order granting partial summary judgment favoring a group of plaintiff restaurants. This is a positive indicator for businesses facing coverage denials. As we’ve reported in previous blog posts such as Business Insurance Coverage for COVID-19 – Wins and Losses for Both Sides, coverage rulings have come down in favor of both insurers and insureds. In North State Deli, LLC et al. v. Cincinnati Ins. Co., (2020), the court sided with the insureds and deemed the loss of business income a direct “physical loss” of property, thereby triggering coverage under the Cincinnati Insurance policies.
The matter was initiated after plaintiff insureds submitted claims to Cincinnati Insurance following pandemic-related closures from local governmental orders. After Cincinnati Insurance’s denial of coverage, the insureds filed suit. In their complaints, plaintiff insureds argued that the pandemic-related closures were coverable losses under their policies, and because the key term of “direct physical loss” was left undefined in said policies, all ambiguities had to be resolved in favor of coverage. In response, Cincinnati Insurance argued that “the policies do not provide coverage for pure economic harm in the absence of direct physical loss to the property, which requires some form of physical alteration to property.”
The North State Deli Judge was ultimately persuaded by the insured’s position, turning to the ordinary meaning of the key terms at issue and holding that the insureds’ loss of “the full range of rights and advantages of using or accessing their business property” was “precisely the loss caused by the government orders.”
In this win for insureds mirroring Indiana’s own collection of related cases such as Am. States Ins. Co. V. Kiger (1996) and Eli Lilly & Co. V. Home Ins. Co. (1985), the North State Deli Judge found the policy language ambiguous due to the lack of key definitions in addition to holding that various governmental orders indeed resulted in a “direct physical loss” to the property of the insured. The reasoning of the North State Deli court was supported by notable North Carolina case law with familiar, pro-insured language like Indiana’s cases that requires all “ambiguity or uncertainty” to be “construed against” the drafter and in favor of policyholders. The Judge’s finding, combined with there being no “virus” or similar exclusion in the policies, resulted in the order requiring Cincinnati Insurance to pay for the business interruption losses.
Although an appeal by Cincinnati Insurance is likely, the North State Deli decision marks an important step for insureds seeking coverage under business interruption insurance. The reasoning and policy interpretation arguments in favor of coverage will help other businesses in Indiana, North Carolina and other states as businesses continue to experience COVID-19 closures and legally challenge business interruption coverage denials.
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