Zurich Ducks Virus Coverage Suit For Chain's 400 Restaurants

By Daphne Zhang
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Law360 (February 4, 2021, 6:15 PM EST) -- A Florida federal judge on Thursday freed Zurich American Insurance Co. from having to cover the COVID-19 related losses of First Watch Restaurants Inc.'s more than 400 brunch locations, holding that the chain owner failed to allege property loss.

U.S. District Judge Virginia Maria Hernandez Covington terminated the suit, saying that while she is sympathetic to the restaurants' loss, business interruptions caused by COVID-19 are only economic loss and cannot be covered by property insurance policies.

First Watch owns a chain of brunch eateries with over 400 locations in 29 states. The restaurants were forced to limit operation due to state closure orders. After it filed insurance claims, Zurich denied coverage, asserting that the presence of COVID-19 does not cause property damage and virus-related losses are barred by the policy's contamination exclusion.

The eatery chain owner then sued Zurich, alleging breach of contract and seeking a declaration that business losses and extra expenses were covered by the policy. The restaurants' owner has contended that it suffered direct physical loss from not being able to use its properties.

On Thursday, Judge Covington sided with Zurich that First Watch failed to show any concrete damages but alleged financial losses.

"A decrease in business due to COVID-19 is a purely economic loss, not the kind of physical loss contemplated by insurance policies," she stressed in the order.

The chain owner had urged the court to break the pattern of previous court rulings that COVID-19 does not cause property damage, arguing that its policy with Zurich is different from other commercial property policies.

Specifically, First Watch said, its policy stated that damage "must be interpreted as something different than 'direct physical loss of,'" leaving the policy language ambiguous enough for the court to rule in favor of coverage.

Judge Covington disagreed on Thursday.

"Florida courts have examined virtually identical policies and held that 'direct physical' modifies both 'loss' and 'damage,'" so that a business interruption loss must result from a physical problem with the property, she said.

The policy's civil authority coverage is not triggered because First Watch never lost full access to its restaurants, as it was allowed to offer take-out and delivery. "Merely restricting access, without completely prohibiting access, does not trigger coverage under these sorts of provision," the judge said.

Additionally, the "time element" provision of the policy clearly stated that a claimed business suspension must be caused by direct physical loss or damage to property, but "First Watch does not allege that COVID-19 was actually present at any of its restaurants," so it cannot get coverage, Judge Covington said.

Counsel for parties could not be immediately reached for comment. 

First Watch is represented by Bard Daniel Rockenbach of Burlington & Rockenbach PA and Ryan Kelly Young and Kenneth John McKenna of Dellecker Wilson King McKenna Ruffier & Sos.

Zurich is represented by Gary J. Guzzi of Akerman LLP.

The case is First Watch Restaurants Inc. v. Zurich American Insurance Company, case number 8:20-cv-2374, in the U.S. District Court in the Middle District of Florida. 

--Editing by Michael Watanabe.

For a reprint of this article, please contact reprints@law360.com.

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Case Information

Case Title

First Watch Restaurants, Inc. v. Zurich American Insurance Company

Case Number



Florida Middle

Nature of Suit



Virginia M. Hernandez Cov

Date Filed

October 09, 2020

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