By Jeff Sistrunk

Law360 (May 27, 2020, 6:26 PM EDT) -- U.S. Specialty Insurance Co. on Tuesday urged a Nevada federal judge to dismiss a Las Vegas breakfast restaurant chain's putative class action accusing it of wrongfully denying business interruption claims amid the COVID-19 pandemic, saying the chain's "restaurant recovery" policy does not afford coverage under the circumstances.

In a motion to dismiss, U.S. Specialty and an affiliate argued the policy they sold to the operator of the Egg Works restaurant chain was not designed to respond to losses stemming from government-mandated closures or limitations on operations such as the stay-at-home order imposed earlier this year by Nevada Gov. Steve Sisolak.

Instead, for coverage to apply, Egg Works' losses must result "directly and solely" from one of several covered events, U.S. Specialty asserted. Those include the accidental contamination of Egg Works' products, any adverse publicity tied to unfounded accusations of contamination, and a third party's threats to tamper with the chain's products for the purpose of extorting money, according to court documents.

However, the insurer argued, Egg Works' class action complaint contains no facts indicating it has suffered any covered event.

"In summary, plaintiffs allege that their claimed losses resulted from the suspension of business operations due to directives from the governor of Nevada," U.S. Specialty's counsel wrote. "The policy simply does not cover losses due to governmental directives resulting in the suspension of business operations because such losses do not directly and solely result from any covered 'insured event' as required for coverage under the policy to apply."

Egg Works, which operates eight breakfast restaurants in and near Las Vegas, filed its proposed class action suit against U.S. Specialty on April 24, alleging the insurer had wrongfully denied its claim for coverage of financial losses it had incurred after Sisolak issued directives in March and early April limiting Nevada's eateries to takeout and delivery service. Those restrictions have since been lifted, and Egg Works' website stated on Wednesday that it has resumed dine-in operations.

Egg Works is seeking to represent a class of similarly situated U.S. Specialty policyholders whose business interruption claims under restaurant recovery policies have been denied.

In Tuesday's motion, U.S. Specialty expressed incredulity that Egg Works has accused it of breach of contract, saying the restaurant operator filed suit just two days after notifying the insurer of the business interruption claim.

"Notwithstanding the fact that plaintiffs provided notice of their claim on April 22, 2020, and filed this action two days later, plaintiffs implausibly allege that defendants denied their claim and have 'refused to or have failed to meaningfully respond to' plaintiffs," U.S. Specialty's attorneys wrote.

The insurer argued that, because Egg Works' losses resulted only from Nevada's shutdown orders — which are not a covered cause — its suit must fail.

"As a result, plaintiffs cannot allege that their claim was denied 'without proper cause' or that they were entitled to compensation for a loss covered by the policy," U.S. Specialty asserted.

Counsel for the parties did not immediately respond to requests for comment Wednesday.

Egg Works is represented by Gregg A. Hubley, Christopher A.J. Swift, Mike Arias and Alfredo Torrijos of Arias Sanguinetti Wang & Torrijos LLP and Alan Brayton, Gilbert Purcell, James Nevin and Andrew Chew of Brayton Purcell LLP.

U.S. Specialty is represented by Robert S. Larsen, Wing Yan Wong, Matthew S. Foy and Jennifer Wahlgren of Gordon & Rees LLP.

The case is Egg and I LLC et al. v. U.S. Specialty Insurance Co. et al., case number 2:20-cv-00747, in the U.S. District Court for the District of Nevada.

--Editing by Michael Watanabe.

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