State courts say no COVID-19 loss insurance for restaurants

COLUMBIA, S.C. (AP) — The South Carolina Supreme Court said Wednesday that a sports bar chain could not recoup damages from its insurance policy over the COVID-19 pandemic and subsequent shutdown.

The ruling in Sullivan Management, LLC v. Fireman’s Fund Insurance Company is the latest victory for insurers as high courts across the country routinely side with them in such disputes. The decisions serve as a cautionary tale on the scope of all-risk policies for local business owners, who are seeing the windows for such pandemic-related lawsuits close.

The Iowa Supreme Court ruled in April that two restaurants could not collect damages over lost business following the governor’s indoor dining order. The Massachusetts high court delivered a similar ruling that same month. A Connecticut state judge in June tossed a case from the Mohegan Tribal Gaming Authority. And over a dozen restaurants lost a similar suit in July at the North Carolina Court of Appeals.

In South Carolina, the court agreed with the insurance company’s argument that there must be the “physical alteration, destruction, or permanent dispossession of property” to make an insurance claim. The inability to use the property is not enough to trigger coverage.

“Fireman’s Fund is pleased that the South Carolina Supreme Court concluded, like nearly every other appellate court in the country, that neither the presence of the COVID-19 virus nor related government shutdown orders cause physical loss or damage under its property insurance policy,” Brett Ingerman, a lawyer for the insurance company, said in a statement.

Lawyers for Sullivan Management, which owns the Carolina Ale House franchise, contested that point. They argued that the policy, which did not clearly define “physical loss” and “physical damage,” covers losses incurred when the property becomes “unfit or unusable for its purpose.”

Because the policy covers the costs necessary to “mitigate, contain, remediate, treat, (and) test for” communicable diseases, the restaurant owners argued they should have been able to collect insurance payouts.

Justin Lucey, who represented the restaurant chain, noted that justices punted decisions on several of the “most hotly litigated” policy terms to the district court. That includes the issue of communicable disease coverage.

In March 2020, Republican Gov. Henry McMaster signed an executive order prohibiting indoor dining. That May, he lifted the restrictions, and in October, he allowed restaurants to open at full capacity.

In many cases, the window for this litigation is closing, too. Most policies have a two-year limitation period, according to the Insurance Coverage Law Center.