In a scenario that has played out across the country for nearly a year now, a group of restaurants based in Ohio were ordered by government authorities to close their on-site dining operations to abate the spread of the coronavirus. However, when the restaurants sought insurance coverage for their loss of business income, their insurer, Zurich American Insurance Company, denied coverage. Last week, the U.S. District Court, Northern District of Ohio found in favor of the policyholders on cross-motions for summary judgment in Henderson Road Restaurant Systems, Inc., dba Hyde Park Grille, et al. v. Zurich American Ins. Co., No. 1:20 CV 1239, 2021 WL 168422 (N.D. Ohio Jan. 19, 2021).
Similar to other property policies, the policy at issue provided coverage for suspension of operations caused by order of civil authority or a government order that prohibited access to the covered premises. The policy also required that the government order result from direct physical loss of or damage to property located within one mile from the covered premises. The parties disagreed as to whether such "direct physical loss of" or "damage to" the policyholders' restaurants occurred under the circumstances.
As in California, Ohio courts must first look to the plain and ordinary meaning of the language used in the policy but, if the policy language is reasonably susceptible of more than one interpretation, it will be construed strictly against the insurer and liberally in favor of the insured. Here, when the policyholders argued that they "lost" their real property when the state governments ordered that the properties could no longer be used for their intended purposes as dine-in restaurants, the court found that the policy's language was susceptible to this interpretation. In other words, the court found that Zurich was obligated to provide business income coverage for the policyholders since the policy language could be read in the policyholders' favor.
Zurich argued that the state orders did not preclude the policyholders, which operated steakhouses, from using their property because they were still permitted to use them for take-out orders. However, the court noted that, prior to the state orders, the policyholders' properties were used almost exclusively for in-person dining, and it was unrealistic to expect these restaurants to meaningfully transition their business to take-out. The court also rejected Zurich's unsupported interpretation that the policy required "permanent" loss of the properties.
Zurich next relied on two exclusions, which likewise did not find footing with the court. Similar to California, Ohio courts require that an exclusion from liability be clear and exact in order to be given effect. First, Zurich argued that the microorganism exclusion precluded coverage, but there was no presence of coronavirus at the restaurants themselves and the court found "it was clearly the government's orders that caused the closures," not the coronavirus. Next, the court rejected application of a loss-of-use exclusion, agreeing with the policyholders that it would render the business income coverage meaningless.
While the court found for the policyholders on the issues of coverage, it granted summary judgment in favor of Zurich on their claim for bad faith, finding that Zurich had reasonable justification for denying coverage.
Ultimately, with regards to other restaurants' and businesses' claims for business income loss, the language of each policy, the particular facts, and state law will determine whether the insurers are obligated to provide coverage.