Eatery Says COVID-Caused 'Loss Of Use' Is Physical Damage

By Daphne Zhang
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Law360 (June 17, 2020, 4:09 PM EDT) -- Seattle eatery Nue LLC urged a Washington federal judge Wednesday not to grant Oregon Mutual Insurance Co.'s bid to toss its suit seeking COVID-19 loss coverage, arguing that it suffered a "loss of use" of property that constitutes physical damage under its policy with the insurer.

Nue, a dine-in restaurant and bar in Seattle, said it has experienced a "loss of functionality" since it partially suspended operations following state-mandated shutdowns in March. Nue said that such loss triggers its coverage because its property "has completely lost its physical utility."

The eatery sued its insurer for wrongfully refusing to pay for its revenue loss from the government-ordered closures in early May. Oregon Mutual urged the court to toss the suit, arguing that Nue experienced no physical damage or business loss, and it was still operating for takeout later that month.

But Nue said Wednesday that Oregon Mutual's argument that physical loss requires alteration of property that needs to be "repaired, rebuilt, or replaced" fails. The restaurant said it suffered physical damage because it lost all functionality of its property including access to its dining room, tables and chairs, and glassware, which could not be used after the government shutdown orders.

"Nue Restaurant's loss of functionality as a dine-in restaurant is a covered loss under Washington law, even if — as is true here — the reason for the shutdown is a government order, and not the presence of the virus itself," said Amy Williams-Derry, an attorney representing the eatery.

Representatives from Oregon Mutual did not immediately respond to requests for comment.

Washington Gov. Jay Inslee issued a stay-at-home order and limited restaurants to only carry-out orders in March.

"Nue has been unable to use its restaurant for its insured purpose of sit-down dining and full-service bar, and it has been unable to allow customers to enter into its dining room or eat any meals on its premises," the restaurant said.

The eatery claimed that its inability to access and use its insured properties made the properties useless, regardless of whether there was physical or structural alteration of the properties. The loss should be covered by its all-risk business owner policy with Oregon Mutual, Nue said.

The fact that the policy defines "property damage" as "loss of use of tangible property that is not physically injured" shows that it covers loss of functionality like what it has experienced, and an ordinary policyholder would read it so, the restaurant contended.

Oregon Mutual has previously argued that because Nue was able to provide delivery or takeout services, its "premises were not uninhabitable or unusable."

But Nue said that the Oregon Mutual policy language itself rejects this argument as the policy specifically provides coverage for a "partial slowdown" of the insured business.

"The fact Nue could use some covered property for some purposes does not change the fact that the utility of the rest of its property was completely lost, and constitutes — at a minimum — a 'partial slowdown,'" it added.

Nue is represented by Amy C Williams-Derry, Gretchen Freeman Cappio, Ian S. Birk, Lynn Lincoln Sarko, Maureen M. Falecki and Nathan L. Nanfelt of Keller Rohrback LL.

Oregon Mutual is represented by Clarke Benbow Holland of Pacific Law Partners LLP.

The case is Nue LLC v. Oregon Mutual Insurance Company, case number 2:20-cv-00676, in the U.S. District Court for the Western District of Washington.

--Editing by Jack Karp.

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Case Information

Case Title

Nue LLC v. Oregon Mutual Insurance Company

Case Number



Washington Western

Nature of Suit



Robert S. Lasnik

Date Filed

May 05, 2020

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