Insurer Looks To Duck Franchise Group's $40M Virus Suit

By Joyce Hanson
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Law360 (January 8, 2021, 9:56 PM EST) -- American Guaranty and Liability Insurance Co. has asked a New Jersey federal court to toss a hospitality and restaurant management group's suit seeking coverage for $40 million in losses linked to the pandemic, joining a string of insurers that deny the coronavirus causes direct physical loss or property damage.

The insurance company argued in its Thursday motion to dismiss the suit leveled by the companies known collectively as the Briad Group — which own more than 120 Wendy's, TGI Friday's, Marriott and Hilton franchises — that the group's business-interruption losses due to the virus can't be covered under its property commercial insurance policy.

Stay-at-home orders issued by state and local governments to restrict nonessential business activities such as the Briad Group's may have caused them to suffer economic losses, but the majority of courts, including the New Jersey federal court and courts elsewhere in the Third Circuit, have dismissed similar claims for business-interruption coverage because the economic losses simply don't constitute physical loss or property damage, the insurer said.

AGLIC cited, among other cases, U.S. District Judge Susan D. Wigenton's Dec. 14 opinion in Boulevard Carroll Entertainment Group Inc. v. Fireman's Fund Insurance Co. and a Pennsylvania federal court ruling in Brian Handel v. Allstate Insurance Co. Judge Wigenton is the presiding judge in the Briad Group's suit.

"Even if this court could presume the presence of the virus at any or all of plaintiffs' properties, plaintiffs' claim would still fail as a matter of law," the insurer said. "It is well settled in the Third Circuit that the mere presence of a potentially toxic substance or the general threat of future damage from its presence does not equate to 'direct physical loss or damage to' property as required under the insuring language of a property insurance policy."

The Briad Group sued AGLIC in October, saying the insurer should cover more than $40 million in losses suffered by its hotel and restaurant franchises due to the coronavirus pandemic. According to the complaint, when the group filed an insurance claim after businesses were forced to close, AGLIC wrongly refused to indemnify them for the losses. The franchise companies said the insurer breached the insurance contract by failing to pay the damages.

In May 2019, the franchise companies took out an insurance policy to provide coverage for physical loss or damage, as well as losses of income due to business interruption, according to the suit. The policy was in effect until May 1, the suit said. The government-mandated shutdowns in the midst of the pandemic qualify as suspension of business activities, according to the suit, and AGLIC should cover the significant loss in revenue, among other losses. But the insurer denied the companies' claim in June, according to the suit.

"American failed to thoroughly investigate the claim to determine if coverage was available under the policy, despite a duty to do so," the franchise companies said. "An insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for a denial of payment in whole or in part."

The suit includes claims of breach of contract and reformation of contract. The Briad Group seeks $40.8 million in judgment against AGLIC, as well as litigation fees and costs.

Counsel for AGLIC and the Briad Group did not immediately respond Friday to requests for comment.

Insurers around the country are being inundated with lawsuits over coronavirus loss coverage, but many are getting the suits tossed.

In October, a Texas federal judge tossed a suit brought by a Dallas restaurant group alleging Cincinnati Insurance Co. stiffed it on coverage of losses stemming from COVID-19, saying the restaurants' allegations were "factually conclusory and/or legal conclusions" that did not plausibly plead that the restaurants had suffered physical loss or damage that would be covered by the policy.

That same week, a Georgia federal judge found that Allied Insurance Co. of America is not obligated to cover losses that a Georgia Cajun restaurant suffered when it closed amid the pandemic, saying the eatery did not allege a requisite "physical loss of or damage to" its property.

And a California federal judge threw out a Los Angeles eatery's suit seeking coverage from The Travelers Indemnity Co. of Connecticut for business losses, finding that the virus had not caused physical loss and that even if it had, the restaurant's policy has a virus exclusion that bars coverage.

The Briad Group is represented by Philip Rosenbach of Berman Rosenbach LLC.

AGLIC is represented by Susan M. Kennedy and Michael Menapace of Wiggin & Dana LLP.

The suit is Manhattan Partners LLC et al. v. American Guaranty and Liability Insurance Co., case number 2:20-cv-14342, in the U.S. District Court for the District of New Jersey.

--Additional reporting by Lauren Berg, Mike Curley and Jeff Sistrunk. Editing by Breda Lund.

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