Law360 (June 11, 2021, 4:35 PM EDT) -- A Florida family-owned chain of restaurants urged the Fourth Circuit for another shot at obtaining coverage from Colony Insurance Co. for pandemic-related losses, arguing a Virginia federal judge incorrectly found that their properties had to be structurally altered by the coronavirus for there to be a covered physical loss.
Even under the judge's restrictive interpretation, the owners of Skillets Restaurants said Thursday, the presence of the coronavirus caused a covered loss. The virus structurally altered the restaurants' surfaces and air, resulting in the loss and diminishment of the properties, the owners told the Fourth Circuit.
"Not only is 'structural alteration' a requirement that is definitively not in the policy, but Colony and other insurers have known — since at least the early 1960s — that many courts do not agree that 'direct physical loss of or damage to property' requires structural alteration," the restaurant owners said in a brief.
Skillets LLC and Good Breakfast LLC were forced to temporarily stop in-person dining at their nine Skillets Restaurants locations in Florida under government orders to mitigate the spread of the coronavirus, according to the proposed class suit filed in August. The restaurants accused Colony of wrongfully denying coverage for the pandemic-related losses.
In March, U.S. District Judge Henry E. Hudson of the Eastern District of Virginia, applying Florida law, tossed the suit. The judge ruled that Colony didn't have to cover the losses as there wasn't any "direct physical loss of or damage" to property as a result of the coronavirus or the closure orders.
In Thursday's brief, the restaurants argued to the Fourth Circuit that courts have held a property's loss of use is "direct physical loss or damage" triggering coverage. The owners said the presence of the coronavirus forced them to repair and refurbish the restaurants to make them safe for customers again.
"Functional spaces in the restaurants could only be used at a severely diminished capacity, with the dining rooms being entirely closed to customers for over a month and only reopening on a limited basis after significant alterations were made to the dining rooms and surrounding areas," the owners said.
The Fourth Circuit is hearing a separate bid by an art class company to resurrect its proposed class suit for pandemic-related losses. That policyholder already argued that a West Virginia federal judge was wrong in finding that the coronavirus doesn't cause physical loss because it can be cleaned from surfaces.
Florida law's position on what is covered for pandemic-related losses is also before the Eleventh Circuit in cases involving appeals by a brunch chain, a steakhouse, another restaurant and a furniture chain.
Timothy W. Burns of Burns Bowen Bair LLP, counsel for Skillets Restaurants, told Law360 on Friday that his clients are hopeful the Fourth Circuit, and others like it, "will make short work" of decisions with poor reasoning, that are "linguistically suspect" and aren't true to principles of policy interpretation.
There is no difference in the rules of policy interpretation between Virginia and Florida, Burns added. Rather, he said the case, like many others, presents straightforward claims for coverage that, under the policyholder-friendly rules of policy interpretation cited by most federal district courts, "are no brainers."
"The insurance industry has managed to fragment the litigation and create a snowball effect from a few early, wrongly-decided victories," he said. "Fortunately, fifty or so strong trees still stand."
Counsel for Colony declined to comment Friday.
The Skillets Restaurants are represented by Timothy W. Burns and Brian P. Cawley of Burns Bowen Bair LLP; Lisa Sarah Brook and Edward Kyle McNew of MichieHamlett PLLC; Adam J. Levitt and Kenneth Abbarno of DiCello Levitt Gutzler LLC; and W. Mark Lanier of The Lanier Law Firm PC.
Colony is represented by William F. Stewart and Gary W. Berdeen of Stewart Smith Law.
The case is Skillets LLC et al. v. Colony Insurance Co., case number 21-1268, in the U.S. Court of Appeals for the Fourth Circuit.
--Additional reporting by Hailey Konnath, Daphne Zhang, Rosie Manins and Joyce Hanson. Editing by Abbie Sarfo.
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