Law360 (December 8, 2020, 5:01 PM EST) -- A Florida federal judge dismissed with prejudice on Monday a suit brought by a proposed class of Florida restaurants fighting certain underwriters at Lloyd's of London over business interruption insurance coverage stemming from the COVID-19 pandemic because it lacked allegations of physical damage.
U.S. District Judge Ursula Ungaro granted the Lloyd underwriters' motion to dismiss and denied as moot all pending motions, pointing to recent orders in state and federal court finding that physical loss is needed to recover under policyholders' all-risk commercial property insurance.
Judge Ungaro noted in her opinion filed Monday that federal district courts throughout the country "have dismissed substantially similar COVID-19-related lawsuits for failing to state a claim for business income coverage."
The El Novillo Restaurant group, which sued the Lloyd's underwriters in April asserting that the policies don't contain an exclusion for a viral pandemic, incorrectly relied on the policies' exclusionary provisions in an effort to establish coverage, the judge said.
"The Florida Supreme Court, however, has squarely rejected such an approach," Judge Ungaro wrote. "Accordingly, plaintiffs' reliance on the policies' exclusionary provisions must be rejected as a means to establish coverage in the first instance."
The El Novillo Restaurant group brought suit hoping the court would declare that governments' stay-at-home orders aimed at slowing the coronavirus caused catastrophic business disruptions and must trigger coverage under policyholders' all-risk commercial property insurance.
But the underwriters argued in June that the policies only apply to physical damage, not to preemptive shutdowns to slow down a pandemic. The policies cover costs between when a physical loss takes place through repairs, according to Lloyd's.
The restaurants told the court in August that while COVID-19 was not known to be present at their restaurants, it did cause a dangerous physical condition throughout the county that gave rise to the government's orders, triggering the civil authority provision in the policy.
The El Novillo Restaurant group contends that insurers like Lloyd's have covered nonstructural "physical loss" claims for years and are using an "unreasonably narrow" interpretation of the term to deny COVID-19 coverage.
In her opinion Monday, Judge Ungaro wrote that the restaurants failed to allege any physical damage to any property and the COVID-19 restrictions implemented throughout the state did not entirely prohibit customer access, but merely restricted access to indoor dining.
Judge Ungaro also pointed to a similar Florida federal case, Malaube LLC v. Greenwich Ins. Co., in which a magistrate judge relied on Eleventh Circuit precedent. She determined that a restaurant suffering economic loss due to COVID-19 could not recover insurance benefits because it did not suffer physical damage.
"The court thus finds that plaintiffs' allegations are insufficient as a matter of law to establish coverage under the Business Income or Extra Expense Coverage sections," the judge wrote.
Judge Ungaro said plaintiffs failed to allege coverage under the Civil Authority Additional Coverage section because the governmental COVID-19 orders did not prohibit customers from accessing the restaurants, since the restaurants remained open for delivery and takeout.
"Given that plaintiffs have already had an opportunity to amend their initial complaint, and because the court finds that any further amendment would be futile, the dismissal is with prejudice," Judge Ungaro wrote, ending the litigation.
Representatives for the parties could not immediately be reached for comment Tuesday.
El Novillo Restaurant is represented by Benjamin Widlanski of Kozyak Tropin & Throckmorton LLP.
The underwriters are represented by Armando P. Rubio of Fields Howell LLP.
The case is El Novillo Restaurant et al. v. Certain Underwriters At Lloyd's London et al., case number 1:20-cv-21525, in the U.S. District Court for the Southern District of Florida.
--Additional reporting by Mike Curley. Editing by Ellen Johnson.
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