Family Tacos, LLC v. Auto Owners Ins. Co.

Summary

In this business interruption case resulting from mandatory shutdowns to control COVID-19, the court grants a motion to dismiss the plaintiff’s claims. Plaintiff operates two restaurants in Ohio, which has incurred losses due to the pandemic. Because the policy, as a matter of law, does not cover such losses, the dismissal was granted.

Case Digest

COVID-19-related damages cases are making their way through state and federal courts. Plaintiffs typically are businesses that have suffered economic losses because of various mandatory shutdowns. They file claims with their insurance company, which frequently denies coverage for business interruption losses. However, more often than not, courts have sided with the defendant’s insurance company and dismissed the plaintiff’s case or ruled against the business owner. In the instant case, the plaintiff, FamilyTacos LLC, operated two restaurants in Ohio. After losses were incurred due to the pandemic, the plaintiff submitted a claim for business interruption coverage to its insurer, Auto Owners Insurance Co.

Background

The plaintiff submitted a claim for business interruption coverage after incurring losses due to the pandemic. The plaintiff’s policy covered loss of business income and loss due to actions of civil authority. The defendant rejected the plaintiff’s claim, resulting in the current litigation. “Plaintiff alleges three claims: (1) declaratory judgment; (2) breach of contract; and (3) breach of the covenant of good faith and fair dealing (bad faith).”

Relevant Policy Provisions

Plaintiff’s policy provides coverage for “direct physical loss of or damage to Covered Property at the premises … caused by or resulting from any Covered Cause of Loss. “Covered Cause of Loss” is defined as “[d]irectphysical loss,” subject to certain exclusions and limitations. The policy provides “Business Income and Extra Expense” coverage and “Civil Authority” coverage.

Analysis and Opinion

The business income and extra expense coverage provisions of the policy cover business income lost during a defined period of suspension of operations. The suspension must be caused by direct physical loss to the covered property caused by a “covered cause of loss.” These losses are covered by a defined restoration period. There is also a provision for a civil authority loss where the property damaged might not be the covered property. Still, access to the covered property is prohibited under the action of civil authority. Also, there is a “virus or bacteria” exclusion that precludes coverage for “loss or damage caused by or resulting from virus, bacterium or other microorganisms that induce or is capable of inducing physical distress, illness or disease.”

The dispute is covered by Ohio law since that is where the covered property is located. The state of Ohio had issued stay-at-home orders due to the COVID-19 pandemic that resulted in losses to businesses such as restaurants, including the plaintiff’s properties. The plaintiff claims that the virus very likely “caused” physical damage to its property. At the motion to dismiss level, per the court, a claim must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”

Auto Owners argues that the plaintiff is not entitled to coverage because it did not suffer a covered cause of loss, which requires physical loss or damage. Second, the plaintiff is not covered under the civil authority clause because there was no damage to property other than their own, and access to their property was not wholly prohibited as a result of damage to another’s property.

The plaintiff asserts that the term physical loss or damage is ambiguous. He also says the civil authority clause should apply because the shutdown orders prohibited them from conducting normal operations. The plaintiff argues the virus exclusion clause does not bar coverage because the pandemic caused the losses. This no longer novel approach attempts to separate a pandemic a virus caused from an actual virus.

The court determined that the term “physical loss or damage” is not ambiguous. They are common words to be given their ordinary meaning. Further, as a trigger for coverage, the defendant’s policy excludes losses from the COVID-19, and the virus did not cause any perceptible harm to the properties. Loss of intended use is also not considered physical loss because doing so would render the restoration useless.

The court then went into a lengthy discussion of Ohio case law on the subject, having set the subject with the statement that other state law outside of Ohio would not govern in this case. Noting that Ohio courts do not provide a definitive definition for the language at issue in the policy, the plaintiff is left to argue that the wording is ambiguous. Despite some Ohio cases where the issue has been decided in favor of the plaintiff insureds, the court distinguishes those cases from the case at hand, deciding the language in the policy is not ambiguous.

In part, the civil authority coverage relies on the ambiguity or lack thereof of the“physical loss or damage” wording, which the court has already said is not ambiguous. For that and other reasons related to that clause, the court says coverage is not provided under the civil authority clause.

The court notes that the plaintiff’s argument proves too much. This pandemic arises from a virus. Without question, SARS-CoV-2 is a ‘virus capable of inducing physical distress, illness or disease.’” For this and other reasons, the virus exclusion is effective to disallow coverage under the policy.

The court then returns to a discussion of similar Ohio cases and distinguishes them or affirms them as they relate to this case, in some cases, leveling heavy criticism against her confreres. The bottom line is that the analysis of these cases does not change the court’s opinion. In wrapping things up, the court determined that there is no basis for declaratory relief and no breach of contract or bad faith. The court grants the defendant’s motion to dismiss.