By Jeff Sistrunk

Law360 (November 4, 2020, 7:06 PM EST) -- A Mississippi federal judge on Wednesday dismissed a hamburger restaurant's putative class action complaint alleging Travelers has wrongfully denied policyholders' claims for business losses due to COVID-19 shutdown orders, finding that the eatery has not claimed the requisite "direct physical loss of or damage to" its property.

U.S. District Judge Keith Starrett granted Travelers Casualty Insurance Co. of America's motion to dismiss the proposed class action suit brought by Hattiesburg, Mississippi-based Real Hospitality LLC, which does business as Ed's Burger Joint.

Following the reasoning of numerous other courts that have thrown out similar suits against insurers, the district judge held that the threshold requirement for the lost business income coverage in Real Hospitality's "all risk" property policy with Travelers — direct physical loss of or damage to an insured property — requires either tangible damage or the "permanent dispossession" of the property.

Here, Real Hospitality has not alleged that it has permanently lost its restaurant or that the eatery suffered any actual damage, Judge Starrett said; instead, the company's suit said only that local and state COVID-19 shutdown orders have barred it from providing dine-in services.

"Reading the policy as a whole, the court finds that plaintiff's complaint fails to state a claim because it does not allege that any insured property was damaged or that plaintiff was permanently dispossessed of any insured property," the judge wrote. "Consequently, plaintiff's contention that 'loss of property' reasonably includes loss of usability is not sustainable."

After COVID-19 stay-at-home orders issued in late March by Hattiesburg's mayor and Mississippi Gov. Tate Reeves limited Real Hospitality to providing takeout and delivery services, it sought coverage for its financial losses from Travelers, but the insurer declined, according to court documents. On May 8, the restaurant operator sued the insurer in Mississippi federal court, seeking recovery on behalf of itself and a nationwide class of other Travelers policyholders that also had their claims for coronavirus-related losses denied.

Travelers moved to dismiss the case the following month, asserting that Real Hospitality had not suffered any covered direct physical loss of or damage to its property and that, even if it had, the policy's virus exclusion would clearly preclude coverage. Real Hospitality countered that its loss of the ability to fully use its restaurant triggered coverage.

In Wednesday's order, Judge Starrett said Travelers has the better argument. He emphasized that the policy's business income coverage only applies during a "period of restoration," which begins on the date of the direct physical loss of or damage to Real Hospitality's property and ends on either the date when the property "should be repaired, rebuilt or replaced with reasonable speed and similar quality" or when the company's business "is resumed at a new permanent location."

"None of these provisions indicate that the period of payment will end simply when operations resume, as plaintiff contends," Judge Starrett wrote. "As such, the court rejects plaintiff's interpretation of the 'period of restoration,' which is that when the executive orders are lifted, this would constitute a 'repair' because plaintiff's property would be restored to a 'sound state.' This contorted interpretation is inconsistent with the plain and common sense meaning of the word 'repair.'"

The district judge also agreed with Travelers that, even if Real Hospitality had met the threshold requirement for coverage, the virus exclusion would kick in because the novel coronavirus clearly was the root cause of the executive orders that curtailed the burger restaurant's operations.

Judge Starrett's decision adds to a burgeoning body of case law regarding coverage for businesses' losses amid the COVID-19 pandemic. According to a Law360 review of court records, state and federal judges have granted insurance companies' motions to dismiss in at least 33 similar suits brought by policyholders, while an estimated 15 cases have survived insurers' dismissal bids and proceeded to discovery.

Counsel for Real Hospitality and a Travelers spokesperson did not immediately respond to requests for comment. 

Real Hospitality is represented by David McMullan Jr. and John Barrett of Barrett Law Group PA and Richard Taylor of Taylor Martino PC.

Travelers is represented by Edward J. Currie Jr. of Currie Johnson & Myers PA, Brenen G. Ely of Ely & Isenberg LLC and Stephen E. Goldman and Wystan M. Ackerman of Robinson & Cole LLP.

The case is Real Hospitality LLC v. Travelers Casualty Insurance Co. of America, 2:20-cv-00087, in the Southern District of Mississippi.

--Editing by Michael Watanabe.

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