Restaurant Insurance Coverage for COVID-19 Losses

A North Carolina Superior Court recently delivered potentially good news to restaurant owners during what could otherwise by considered a bleak year given the unprecedented difficulties the SARS-CoV-2 (“COVID-19") pandemic has brought restaurants and businesses everywhere.

On October 7, 2020, The North Carolina Superior Court in Durham County ruled in favor of restaurants located in Durham, Raleigh, Wake, Orange, Catham, and Buncombe Counties that brought suit against their insurance carriers for losses sustained as a result of the government-mandated pandemic closures due to COVID-19.

The insurance company denied coverage under the “all risk” property insurance policies held by the plaintiff restaurants. The carriers argued that there must be some physical damage or alteration to the property in order for plaintiffs to recover.

The Court determined that the language in the insurance policies, which provided coverage for “direct physical loss or direct physical damage,” was ambiguous because the policy did not define “direct physical loss”. It concluded that the ambiguity should be construed in favor of the restaurants and thus, that the policies afforded coverage.

The Court also dismissed the insurance carriers’ arguments that damage or alteration was required for physical loss finding that their reasoning neglects the “or” in “direct physical loss or direct physical damage”. Lastly, the Court noted that the policies did not include any explicit exclusion for virus-related causes of loss.

While 2020 has been a tough year for many restaurants, the Durham County Superior Court’s decision seems to be a glimmer of hope for restaurant and possibly other business owners to recover under their existing insurance policies. However, it is likely that future policies will incorporate an explicit virus-related loss clause.

If you are a restaurant or other small business and need assistance with your insurance coverage through the Covid shut-downs, give Asheville Legal a call today.