A Glimmer of Hope in Ohio: COVID-19 and Insurance Recovery for Business Income Losses

So far, insurance companies have won the vast majority of lawsuits arising from COVID-19 related business income loss. Courts across the United States have found the lack of actual physical damage to property fatal to policyholders’ business income loss claims. See Turek Enterprises, Inc. v. State Farm Mut. Auto. Ins. Co., No. 20-11655, 2020 WL 5258484 (E.D. Mich. Sept. 3, 2020) (“direct physical loss to” property required policyholder to demonstrate tangible damage to property); 10E, LLC v. Travelers Indem. Co. of Connecticut, No. 2:20-CV-04418-SVW-AS, 2020 WL 5359653 (C.D. Cal. Sept. 2, 2020) (“direct physical loss of” property required policyholder to have suffered permanent dispossession or actual physical damage); Malaube, LLC v. Greenwich Ins. Co., No. 20-22615-CIV, 2020 WL 5051581, at *4 (S.D. Fla. Aug. 26, 2020) (policyholder did not provide evidence of “direct physical loss of or damage to property” where there was no physical damage to the property and restaurant could continue to operate as take out only); Diesel Barbershop, LLC v. State Farm Lloyds, No. 5:20-CV-461-DAE, 2020 WL 4724305 (W.D. Tex. Aug. 13, 2020) (policyholder failed to state a claim as there were no allegations of tangible damage where policy covered “direct physical loss to” property).

Despite numerous courts finding there to be no coverage in situations with similar policy language, a ruling from the U.S. District Court, Northern District of Ohio highlights another potential interpretation of policy language in COVID-19 related insurance recovery disputes for business income losses. In its January 19, 2021 Order and Opinion, the Court in Henderson Road Restaurant Systems, Inc., d/b/a Hyde Park Grill, et al. v. Zurich American Ins. Co., case no. 1:20 CV 1239, found that policy language requiring “direct physical loss of or damage to property” was open to more than one interpretation. The plaintiffs, several restaurant operators, were forced to shut down due to government orders in response to the COVID-19 pandemic and, therefore, were not able to operate as dine-in restaurants. The court found that “direct physical loss of” could mean something different from “damage to” and was therefore ambiguous. Interpreting this ambiguity in favor of the policyholder, physical damage to property was not required for there to be coverage for business income losses. The court determined the policyholders had experienced a “direct physical loss of” their property in that they could not use the properties for their intended purpose as dine-in restaurants due to government restrictions. Importantly, the Court also held that “loss of” does not require a permanent dispossession of property. Based upon the policy language, the Court found there to be coverage for these restauranteurs’ COVID-19 related business income losses.

It is important to note that the U.S. District Court, Northern District of Ohio ruling in Henderson Road Restaurant Systems is a federal court predicting how Ohio state courts would rule. Further, the opinion is appealable and will likely be appealed. Additionally, there are other cases dealing with similar questions working their way through Ohio state courts. So far, very few courts have adopted a policy-holder friendly view on COVID-19 related business interruption claims. While it is possible Ohio courts will follow the Henderson Road Restaurant Systems opinion, it is important for policyholders to remain patient until a ruling from Ohio’s appellate courts is issued.

If you have questions concerning insurance recovery for business income related losses please reach out to Nick Reuhs, Sam Gardner or Teo Belli for more information.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.