By Jeff Sistrunk

Law360 (October 6, 2020, 9:26 PM EDT) -- Allied Insurance Co. of America is not obligated to cover losses that a Georgia Cajun restaurant suffered when it closed amid the COVID-19 pandemic, a federal judge in the Peach State ruled Tuesday, finding the eatery did not allege a requisite "physical loss of or damage to" its property.

Chief U.S. District Judge Thomas W. Thrash Jr. granted Allied's motion to dismiss the complaint filed by Acworth, Georgia-based Henry's Louisiana Grill Inc. and an affiliate, concluding the restaurant operator cannot tap into the business income or "civil authority" coverage in its policy with the insurer.

Henry's had temporarily shuttered its dining rooms after Georgia Gov. Brian Kemp issued a March 14 executive order declaring a public health emergency and mobilizing state resources to combat the pandemic, according to court documents. That order did not, however, compel businesses to close or reduce operations.

The Allied policy extended coverage to Henry's for a loss of business income resulting from a suspension in operations tied to direct physical loss of or damage to the company's property, according to court documents. Henry's asserted that the requirement was met because, after Gov. Kemp's executive order was issued, its dining room space "was no longer physically available to patrons."

But Judge Thrash was unconvinced, saying the interpretation of the policy language advanced by Henry's "exceeds any reasonable bounds of possible construction."

The district judge pointed to a Georgia appeals court's 2003 opinion in AFLAC Inc. v. Chubb & Sons, which interpreted the word "direct" in a similar policy to mean "immediate" or "without intervening persons, conditions or agencies." Applying that definition, Judge Thrash found that the executive order had no direct impact on Henry's property as required by the business income provision in the Allied policy.

"Every physical element of the dining rooms — the floors, the ceilings, the plumbing, the HVAC, the tables, the chairs — underwent no physical change as a result of the order," the judge wrote. "The only possible change was an increased public and private perception of the existing threat, which cannot be deemed a physical change that rendered the property unsatisfactory."

Judge Thrash further opined that a ruling in favor of Henry's would "potentially make an insurer liable for the negative effects of operational changes resulting from any regulation or executive decree, such as a reduction in a space's maximum occupancy."

Henry's fared no better under the Allied policy's civil authority provision, which insured the restaurant operator against losses attributable to its inability to access its property due to a government order. Critically, that provision stated that any such order must be issued in response to damage at a property other than Henry's.

Judge Thrash found that Henry's bid for coverage under that provision fails for multiple reasons. For one, he said, Gov. Kemp's executive order had no "substantive provisions" limiting private companies' ability to access their properties and do business.

"While the order could be read as 'advising' residents to stay home, the order itself does not represent an action to prohibit access to the described premises," the judge wrote.

Moreover, the district judge said, Henry's complaint did not contain any facts indicating that "any particular property" in the vicinity of the restaurant was actually damaged by COVID-19.

"Thus, by failing to plead sufficient facts to satisfy several conditions precedent, the plaintiffs cannot claim coverage," Judge Thrash wrote.

Given his holding that Henry's cannot tap into coverage under the business income or civil authority provisions of the Allied policy, the district judge did not reach the issue of whether coverage is separately barred by the policy's exclusion for claims stemming from a "virus, bacteria or microorganism."

Judge Thrash's order follows 17 prior decisions by federal and state judges dismissing policyholders' suits seeking coverage for losses tied to the pandemic, according to a Law360 review of court records. By contrast, six decisions have allowed policyholders to proceed with claims for pandemic-related coverage.

An attorney for Henry's declined to comment Tuesday, while counsel for Allied did not immediately respond to a request for comment. 

Henry's is represented by James J. Leonard of Barnes & Thornburg LLP.

Allied is represented by Philip Wade Savrin and William Shawn Bingham of Freeman Mathis & Gary LLP.

The case is Henry's Louisiana Grill Inc. v. Allied Insurance Co. of America, case number 1:20-cv-02939, in the U.S. District Court for the Northern District of Georgia.

--Editing by Janice Carter Brown.

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