Insurer Says COVID-19 Loss Claims Void If Eateries Are Open

By Daphne Zhang
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Law360 (June 15, 2020, 10:12 PM EDT) -- Society Insurance urged a Wisconsin federal judge to toss a proposed class action suit accusing it of wrongfully denying coverage for COVID-19-caused losses for bars and restaurants, arguing Monday that the businesses are still open for takeout and never lost access to their locations.

The insurer said the eateries and taverns suffered no direct physical loss to their properties, that closures ordered by civil authorities did not prohibit them from accessing their businesses, and that they failed to show that their food and property were contaminated by the novel coronavirus.

"The walls remain standing, the roofs have not been torn off, and the property remains untouched by fire or water — and, in fact, the plaintiffs are still allowed to use the premises for preparing and serving food for takeout," the insurer said on Monday.

Society was hit with a proposed class action suit by half a dozen restaurants and bars in Wisconsin, Minnesota and Tennessee in April, accusing it of breaching contracts by not covering business and physical losses from state-mandated closures amid the COVID-19 pandemic. The eateries and taverns, led by Madison Sourdough and Willy McCoys, argued that COVID-19 caused property damage and government closure orders made them lose access to their business locations, according to court records.

"There has been no alteration in the structure or composition of plaintiffs' covered property," Society argued in Monday's dismissal motion. The insurer said the restaurants and pubs failed to show there were "repair, rebuilding or replacement" on any of their properties, so there was no physical loss.

In the motion, Society said that Madison Sourdough's and Willy McCoys' switching to takeout and delivery is an "intangible" change in operations "similar to a change in zoning resulting in different hours a business can be open or a temporary suspension of a liquor license." A short term business operation change or limitation does not create direct physical damage, it added.

The civil authority closure orders due to COVID-19 "has everything to do with protecting human life by controlling when and how people assemble in particular places, and nothing to do with any damaged property," the insurer claimed in the motion.

"It is not plaintiffs' premises themselves that are unsafe, but the possible threat of transmission among large groups of people within any area," Society said in the motion.

The fact that the restaurants and bars are encouraged by state governments to do takeout demonstrates this distinction, the insurer said.

And since Madison Sourdough and Willy McCoys are able to produce food and beverages for takeout and delivery in their business locations, they cannot allege that either their food and drinks or their property are contaminated, so their argument that they suffered losses caused by COVID-19 contamination does not stand, Society added.

Representatives for both parties could not be reached for comment.

Madison Sourdough and Willy McCoys are represented by Adam Levitt, Mark DiCello and Ken Abbarno of DiCello Levitt Gutzler LLC, Mark Lanier and Alex Brown of the Lanier Law Firm PC, Timothy Burns, Jeff Bowen, Freya Bowen and Jesse Bair of Burns Bowen Bair LLP, and Douglas Daniels of Daniels & Tredennick.

Society is represented by Beth J Kushner, Christopher E Avallone, Heidi L Vogt and Janet E Cain of von Briesen & Roper SC

Rising Dough Inc. et al. v. Society Insurance, case number 2:20-cv-00623, in the U.S. District Court for the Eastern District of Wisconsin.

--Editing by Michael Watanabe.

For a reprint of this article, please contact reprints@law360.com.

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