A new COVID-19 business interruption ruling worries insurance defense attorneys
“Nothing in the policy excludes coverage,” said Superior Court Senior Judge Orlando Hudson Jr., in a ruling that concerns insurance companies.
Insurance defense attorneys are finding cause for concern in a North Carolina ruling in a COVID-19 business interruption case.
Durham County Superior Court Senior Judge Orlando Hudson Jr. signed a pair of October orders that stand out from the early victories insurance companies have enjoyed in the majority of cases brought by policyholders seeking to claim losses for income they could not earn during the coronavirus pandemic.
Hudson denied the Cincinnati Insurance Company’s motion for summary judgment in a lawsuit filed by the owners of 16 restaurants—North State Deli, Lucky’s, Mothers & Sons and more. That alone stood out. Only a handful of judges around the country have ruled against insurance companies in these cases—notably one in Missouri and one in New Jersey.
But Hudson went further. He granted the plaintiffs’ motion for partial summary judgment against the insurance company. That motion sought a declaratory judgment that “Cincinnati must replace the lost business income and extra expenses under insurance policy contracts.” Hudson granted that declaratory judgment.
The judge noted the “parties sharply dispute” the meaning of the term “direct physical loss”— which the policy did not define. So he turned to the dictionary.
Hudson said that the restaurant owners “were expressly forbidden by government decree from accessing and putting their property to use for the income-generating purposes for which the property was insured.”
Like most other states, North Carolina leaders “entered civil authority orders mandating the suspension of business operations at various establishments,” Hudson said. “The orders also prohibited, via stay-at-home mandates and travel restrictions, all non-essential movement by all residents.”
“This is precisely the loss caused by the Government Orders,” Hudson said. “Nothing in the policy excludes coverage.”
Jonathan Reid Reich and Rachel E. Keen, both insurance defense litigators with Womble Bond Dickinson in North Carolina, said they and their colleagues will be eagerly watching to see what happens with the appeal of Hudson’s orders.
“This could embolden plaintiffs’ attorneys to file more lawsuits,” Keen said. “That’s our expectation.”
“Think about the magnitude of this issue,” Reich said. He said a significant storm usually generates about 50 lawsuits against insurance companies. COVID-19 has spawned at least that many every couple of weeks or so since the pandemic began, he said.
Up until now, the insurance companies have won the majority of those on summary judgment. But with the North Carolina judge’s ruling, the outlook for the future is no longer so favorable.
As Reich put it, “It’s like a major hurricane making landfall every month—across the country.”
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