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Since the onset of the COVID-19 pandemic, courts around the nation have faced the issue of whether insureds are entitled to coverage for business interruption losses resulting from the pandemic. In nearly all of these cases, the question has turned on policy language requiring “direct physical loss of or damage to property” as a condition for coverage. The overwhelming majority of courts have held that there is no coverage for COVID-19 business interruption losses because the virus simply does not cause direct physical loss of or damage to property. The Louisiana Supreme Court has now reached the same conclusion in Cajun Conti LLC v. Certain Underwriters at Lloyds.

Cajun Conti was the first lawsuit filed in the country seeking business interruption losses from the pandemic, and the first to go to trial. The trial court ruled in favor of the insurer, finding no coverage for the insured-restaurant’s business interruption losses. However, in an outlier decision, the Louisiana Fourth Circuit found that the policy was ambiguous in the context of COVID-19, and interpreted it as affording coverage. The Louisiana Supreme Court granted certiorari and recently reversed the Fourth Circuit in a 5-2 decision, joining the vast number of federal courts and other states’ highest courts finding no coverage for business interruption losses related to COVID-19.

Reviewing the policy’s coverage language, the majority explained that “to recover lost business income, the insured must experience a suspension of operations ‘caused by direct physical loss of or damage to property.’ The suspension may be a ‘slowdown’ or a ‘cessation’ of business activities, and the claimant may recover lost business income during the ‘period of restoration,’ but all are conditioned upon “direct physical loss of or damage to property.’” The majority thus concluded that the question of coverage turned on whether there was “direct physical loss of or damage to property,” and set out to interpret that language.

In doing so, the majority found that the policy’s “direct physical loss of or damage to property” requirement unambiguously required damage or loss that is physical in nature (i.e., tangible or corporeal loss or damage) and direct rather than indirect. The majority further explained that, contrary to the Fourth Circuit’s opinion, "loss of use alone is not 'physical loss.'" The majority recognized that while “COVID-19 required Oceana to decrease its capacity, spread out its guests and allocate greater attention to cleaning and sanitation,” “the property remained physically intact and functional, needing only to be sanitized.” Thus, the majority concluded that “COVID-19 did not cause damage or loss that was physical in nature.”

The majority found support for its interpretation in the policy’s definition of “period of restoration.” The policy provides that an insured can recover lost business income during a “period of restoration,” which “begins 72 hours after a ‘direct physical loss of or damage to property’ . . . [and] ends when the property should be ‘repaired, rebuilt or replaced with reasonable speed and similar quality’ or ‘business is resumed at a new permanent location.’” The majority concluded, contrary to the Fourth Circuit, that the words “repaired, rebuilt or replaced” are unambiguous and have a technical meaning. The Court focused on the definition of “repair,” and rejected the Fourth Circuit’s conclusion that the word could mean cleaning or sanitizing. As the majority explained, “[a] layperson would not say that cleaning or sterilizing tables, plates or silverware is a ‘repair.’”

The majority also rejected the Fourth Circuit’s finding that the word “suspension” is ambiguous. The majority found the policy's definition of “suspension” is clear, and that while a compensable claim exists for loss of or damage to property that is either partial or total, it must always be physical in nature. 

Finally, the majority rejected the insured’s coverage argument based on the absence of a virus exclusion in the policy, finding that “irrelevant” in light of the clear and unambiguous terms of the policy.

*The Adams and Reese appellate team handling the appeal was Martin Stern, Leigh Ann Schell, and Alexandra Lamb, and Stern argued to the Louisiana Supreme Court.