Law360 (March 9, 2021, 7:09 PM EST) -- Greater New York Mutual Insurance Co. doesn't owe coverage for two Boston restaurants' pandemic-related losses, a Massachusetts federal judge ruled Tuesday, saying there wasn't any physical loss or damage to the restaurants caused by the threat of contamination or government shutdown orders.
U.S. District Judge F. Dennis Saylor IV reluctantly found business interruption coverage doesn't extend to Kamakura LLC and Atlántico LLC for losses from shutting their doors due to the coronavirus.
Kamakura and Atlántico closed their Japanese-style and Spanish and Portuguese seafood restaurants in response to government shutdown orders. Judge Saylor said it wasn't clear what the restaurant owners believed caused their loss but that both the virus' threat and the shutdown orders didn't cause it.
"[T]he pandemic is the type of occurrence — a widespread disaster for which a small business cannot possibly prepare — where insurance coverage ought to be routinely available," the judge said, expressing sympathy for the difficulties the restaurant owners faced but ultimately siding with GNY.
Like other restaurants, government orders forced Kamakura and Atlántico to shutter their businesses to reduce the coronavirus spread. Kamakura and Atlántico filed a proposed class suit in July in the District of Massachusetts alleging their inability to use the properties triggered business interruption coverage under GNY's policies.
Across the country, courts are dealing with the same issue concerning whether the coronavirus and shutdown orders trigger coverage. On Monday, an Arizona federal judge dismissed a lawsuit by three restaurants against Cincinnati Insurance Co., finding that COVID-19 doesn't cause property damage because it can be easily cleaned.
In Tuesday's ruling, Judge Saylor dismissed the restaurant owners' suit alleging breach of contract and unfair trade practices under Massachusetts law. GNY doesn't owe business income or civil authority coverages because there isn't any "direct physical loss of or damage to property," the judge said.
The spread of the coronavirus, which is a submicroscopic organism, is "physical," according to the judge, but GNY's policies state the loss or damage itself must be "physical." The restaurants' losses were caused by the government shutdown orders, not the presence of the coronavirus, Judge Saylor held.
And, Kamakura and Atlántico can't show the coronavirus or infected individuals were present at the restaurants, according to the ruling. The shutdown orders didn't single out any Massachusetts business but were issued to all in an effort "to slow future transmission of the virus, not to remedy past transmission," the judge said.
Finally, Judge Saylor ruled the restaurant owners weren't barred from their properties. Rather, the government orders prevented some uses, the judge said, finding the state encouraged restaurants "to continue to offer food and beverages for take-out and by delivery" under certain guidelines.
"[T]he court will join the growing number of courts that have concluded that the presence or threat of coronavirus does not constitute a 'direct physical loss of or damage to property,' even when it or subsequent government orders render that property unusable for its intended purpose," the judge said.
This is the second COVID-19 coverage win for Robinson & Cole LLP in the past week after scoring a dismissal for Strathmore Insurance Co., a subsidiary of GNY, in the same federal court. U.S. District Judge Nathaniel M. Gorton held Legal Sea Foods LLC couldn't allege the coronavirus was present and caused any damage or loss to its 32 properties.
Thomas D. Hughes, executive vice president and general counsel for GNY, said the insurer doesn't comment on pending litigation.
Counsel for Kamakura and Atlántico didn't respond to requests for comment Tuesday.
Kamakura and Atlántico are represented by Edward F. Haber, Michelle H. Blauner and Adam M. Stewart of Shapiro Haber & Urmy LLP.
Greater New York is represented by Gregory P. Varga, Jonathan E. Small and Julianna M. Charpentier of Robinson & Cole LLP.
The case is Kamakura LLC et al. v. Greater New York Mutual Insurance Co., case number 1:20-cv-11350, in the U.S. District Court for the District of Massachusetts.
--Additional reporting by Joyce Hanson and Daphne Zhang. Editing by Janice Carter Brown.
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