Dive Brief:

• A judge in North Carolina has ruled in favor of a group of restaurants seeking business interruption insurance coverage for losses incurred during state-mandated shutdowns amid the COVID-19 pandemic. According to Law360, the restaurants, led by North State Deli LLC, sought coverage from The Cincinnati Insurance Co. The restaurants filed a lawsuit after initial coverage from the insurance company was denied.
• North State’s attorney says this is the first decision in favor of a restaurant business against an insurance company claiming that the pandemic caused a "physical loss." The judge ruled that definition of the term could be interpreted as "resulting from a given cause," and did not need a physical alteration to justify coverage, as The Cincinnati Insurance Co. argued.
• Legislators in New York, New Jersey, Massachusetts and Ohio started going to bat for businesses forced to shut down due to the pandemic as early as early April. Still, many insurers have refused to pay restaurant owners for business interruption claims because policies exclude viral contamination and are designed to cover physical property damage piece.

Dive Insight:

The Cincinnati Insurance Co. plans to appeal the ruling, citing an unambiguous definition of "structural alteration." However, the judge’s interpretation of "physical loss" in this case could set up similar rulings in favor of restaurant companies.

The Oceana Grill in New Orleans brought forth a similar case against its insurer in March, claiming its policy covers "all risk," without exclusions. A number of restaurants have also filed suits, including Chef Thomas Keller, the El Novillo Restaurant Group and Vandelay Hospitality Group LP. Even heavyweight fast food chain In-N-Out is taking legal action to recover losses from the lockdown.

Overseas in May, a French court ruled that an insurance company must pay two months’ worth of a restaurant company’s revenue losses due to the COVID-19 outbreak.

The impact of the North State Deli ruling is uncertain, however, as many insurance companies changed their policies to exclude ambiguous language as it pertains to viral outbreaks, a move prompted by the 2003 SARS outbreak.

But restaurants are hard pressed currently to find relief. The industry is on track to lose about $240 billion by the end of this year because of the pandemic. According to Insureon, business interruption insurance typically costs between $40 and $130 per month, and can be more for high-value businesses with high liabilities. That is no small amount for restaurants that skate by on wafer-thin margins.

Lawsuits may not be the only avenue. A citizen advocacy group called Thirst (The Hospitality Industry Re-Imagined Security Trust) is working with lawmakers to help restaurant owners collect money from insurance companies. According to the Providence Journal, the group’s objective is to get a law passed that forces insurance companies to provide such coverage for businesses ordered to close.