Cincinnati Insurance Beats Ariz. Eateries' Virus Coverage Suit

By Daphne Zhang
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Law360 (March 8, 2021, 9:03 PM EST) -- An Arizona federal judge Monday axed a lawsuit by three restaurants against Cincinnati Insurance Co., finding that COVID-19 doesn't cause property damage that would trigger the insurance policies because it can be easily cleaned.

U.S. District Judge Susan Marie Brnovich said three sports bars in the Phoenix area failed to show any physical damage to their properties, a precondition for coverage. The judge closed the case, ruling that they cannot save their suit with further allegations.

The three restaurants, two locations of a grill called The Hub in Mesa, Arizona, and one called Union Grill & Tap in nearby Gilbert, had argued the virus triggered insurance coverage for several reasons, including that the presence of the coronavirus in its restaurants represented physical damage.

On Monday, Judge Brnovich sided with Cincinnati — and most court rulings on COVID-19 related coverage disputes — finding that the novel coronavirus does not cause such damage.

"The mere fact that Plaintiffs needed to clean surfaces that could host the virus does not constitute actual physical damage entitling them to coverage under the policy," the judge said. "Plaintiffs could easily remedy the problem by diligently cleaning, and clearly no repairs were necessary."

The restaurants' suit echoes claims in hundreds of other lawsuits over insurance coverage as the pandemic and government shutdowns have hit businesses hard. The cases have often turned on whether the virus itself causes physical damage to a property, and whether the policy includes a virus exclusion.

Courts around the country have issued more than 250 decisions on insurers' efforts to dodge the more than 1,500 COVID-19 business interruption coverage suits. Around two-thirds of the rulings favor insurers whose policies contained specific exclusions for losses stemming from viruses, bacteria or other microorganisms, according to data from the University of Pennsylvania Carey Law School.

For example, a Missouri federal judge last summer found that virus molecules caused physical damage and allowed claims by hair salons and restaurants to proceed. But last week, a Georgia federal judge ruled the opposite, concluding that there weren't any confirmed cases in a dental office challenging its insurance coverage denial, and the government's decision to stop any non-emergency dental procedures didn't cause any physical damage under Peach State law.

A North Carolina judge in October, meanwhile, found that direct physical loss can include an "inability to utilize … something in the real, material or bodily world, resulting from a given cause."

And the Ohio Supreme Court and the Third Circuit have each been asked to decide whether the pandemic or the existence of COVID-19 on property constitute direct physical loss or damage on a property.

In Monday's order, Judge Brnovich said the eateries' pandemic-related losses are not covered even though the policy lacks a virus exclusion.

Additionally, although onsite dining was prohibited, the grills' staff were in the restaurants preparing for food deliveries and customers were able to go there to get their take-out the whole time during government lockdowns. The grills never lost full access to their property, so the policy's civil authority coverage was not triggered, she added.

The three Mesa and Gilbert, Arizona-based restaurants sued Cincinnati last June after the insurer denied coverage, alleging breach of contract and seeking a declaration that their pandemic-related losses are covered under the "all-risk" policies.

The eateries said the virus was physically present on their properties after a manager and one restaurant owner who tested positive for COVID-19 frequently showed up at all three restaurant locations, making their properties unusable as intended. The pandemic and government orders have limited their business operations and forced them to lay off staff, making them suffer "direct accidental physical loss or accidental physical damage to property," the grills alleged.

Different from other insurance policies that require "direct" physical loss or damage for coverage, their policies required "accidental" physical loss or damage, the grills said. The definition of "physical damage" does not just include "physical destruction or harm," but also "loss of use," they said in the suit.

However, Judge Brnovich did not buy that notion on Monday.

"The policy in question requires actual physical damage to Plaintiffs' property," she said.

"Plaintiffs allege no facts showing their premises were physically damaged in any way," the judge stressed. "The policy language is unambiguous."

Representatives for the parties could not be immediately reached for comment on Monday.

The eateries are represented by Anthony W. Merrill and Catherine Tonsich Barnard of Snell & Wilmer LLP.

Cincinnati is represented by G. David Rubin and Hayk Ghalumyan of Litchfield Cavo LLP, Josh Michael Snell and Sanford Keith Gerber of Jones Skelton & Hochuli PLC.

The case is B Street Grill and Bar LLC et al v. Cincinnati Insurance Company, case number 2:20-cv-01326, in the U.S. District Court for the District of Arizona.

--Additional reporting Shawn Rice and Jeff Sistrunk. Editing by Emily Kokoll.

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Case Information

Case Title

B Street Grill and Bar LLC et al v. Cincinnati Insurance Company

Case Number




Nature of Suit

Contract: Insurance


Susan M Brnovich

Date Filed

July 06, 2020

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