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Law360 (June 24, 2021, 4:24 PM EDT) -- A Manhattan cafe's losses arising out of the COVID-19 pandemic and government shutdown orders weren't caused by a "direct physical loss" to property, a New York federal judge ruled Wednesday, throwing out a proposed class suit against XL Insurance America Inc.
U.S. District Judge P. Kevin Castel held that "direct physical loss" requires a tangible loss, which doesn't include restrictions against certain uses like the government orders that forced Cafe du Soleil, a family-owned restaurant, to close indoor service during the COVID-19 pandemic to curb the spread of the coronavirus.
"The parties did not agree to coverage in the event that the café suspends operations due to 'loss' in a generalized sense, but due to the direct physical loss of property," the judge said.
Broadway 104 LLC, the restaurant's owner, filed the proposed class suit in May 2020, bringing claims against XL Insurance for breach of contract and bad faith. The owner alleged the insurer wrongfully denied coverage under a virus exclusion for the losses from closing under government orders.
But Judge Castel, in Wednesday's ruling, said the cafe doesn't show "direct physical loss" to property under the business income coverage. And the civil authority coverage doesn't extend to the losses, the judge said, as the owner wasn't barred from accessing the restaurant under the government orders.
Rather, the government shutdown orders stopped customers from dining at the restaurant, Judge Castel explained. And there aren't any allegations that "authorities prohibited the café from preparing and selling meals from the premises for customer pickup or delivery," the judge added.
Finally, Judge Castel ruled that the policy's virus exclusion doomed the restaurant's ability to recover for its losses. The restaurant alleged the losses were caused by the COVID-19 pandemic, the judge said.
"The exclusion applies to 'any virus' that induces or is capable of inducing illness, and is not, as the café urges, limited to small or routine exposures or incidents of on-site contamination," he said, rejecting the cafe's position that the exclusion doesn't apply based on the scope and severity of the pandemic.
This ruling is the latest in a string of losses to policyholders in business interruption suits since April, according to data from the University of Pennsylvania's COVID Coverage Litigation Tracker.
New York federal judges reached similar results on the "direct physical loss" issue and virus exclusions to toss suits brought by the owner of New York City's Blue Moon Hotel, a martial arts studio, a New York deli and Mohawk Gaming Enterprises LLC's casino for their losses during the COVID-19 pandemic.
Counsel for the cafe and XL Insurance did not immediately respond to requests for comment Thursday.
The cafe is represented by Bradley K. King of Ahdoot & Wolfson PC.
XL Insurance is represented by Matthew Gonzalez, Dan Millea and James R. Martin of Zelle LLP.
The case is Broadway 104 LLC v. XL Insurance America Inc., case number 1:20-cv-03813, in the U.S. District Court for the Southern District of New York.
--Editing by Leah Bennett.
For a reprint of this article, please contact reprints@law360.com.
