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Law360 (June 21, 2021, 4:20 PM EDT) -- Two Michigan restaurateurs are not entitled to coverage for their businesses' pandemic losses, a federal court found Monday, saying neither owner showed that their properties suffered the kind of physical loss or damage required for coverage.
U.S. District Judge Mark A. Goldsmith, in two separate but substantially similar decisions, said the loss of use of the restaurants because of the coronavirus and related government restrictions wasn't covered under policies with Cincinnati Insurance Co. Siding with Cincinnati, Judge Goldsmith likened the presence of the coronavirus in a restaurant to that of the presence of virus causing the flu or the common cold.
"Though each virus can be harmful and potentially deadly, no reasonable person would assert that their presence renders property uninhabitable or substantially unusable," Judge Goldsmith wrote in both of the decisions.
Citing a multitude of findings against policyholders in pandemic coverage suits, Judge Goldsmith said the restaurateurs failed to allege "tangible harm" to their establishments — a common interpretation of direct physical loss in many cases, he noted.
The restaurant owners, Dino Drop Inc. and Chelsea Ventures LLC, operate bars and restaurants across the greater Detroit area, according to court documents. They first sued Cincinnati last year, alleging breach of contract under their "all-risk" commercial property insurance policies. Saying their policies had no virus exclusions, the owners said Cincinnati was exemplifying the "broken promise" of insurers across the country.
A spokesperson for Cincinnati, Betsy Ertel, told Law360 in a statement that the insurer agreed with Monday's decision, reiterating its position that the coronavirus doesn't constitute direct physical loss because it can't physically alter a property.
"We recognize the challenges facing many small businesses," Ertel added. "We have been, and continue to be, committed to doing our part to support the families and businesses in our agents' communities, including helping them to proactively manage risks and promptly paying covered claims."
A representative for the owners didn't immediately respond to a request for comment.
Monday's decisions underscore the difficulties policyholders have faced in federal pandemic coverage suits. Over 80% of such suits have been permanently dismissed, according to data compiled by the University of Pennsylvania's Carey School of Law.
In a similar decision last month, another Michigan federal judge dismissed two pandemic coverage suits brought by restaurants in the Ann Arbor area. Losses incurred by The Little Brown Jug and The Back Room were not entitled to coverage under their policy with Cincinnati because they didn't show insured damage, the court said.
Counsel for Cincinnati did not immediately respond to a request for comment on Monday's decisions.
Dino Drop and Chelsea are represented by Larry Buckfire of Buckfire & Buckfire PC and by Jim Kelly of Jim Kelly Law PC.
Cincinnati is represented by Bradford S. Moyer of Plunkett Cooney and Dennis M. Dolan of Litchfield Cavo.
The cases are Dino Drop Inc. et al. v. Cincinnati Insurance Co. and Chelsea Ventures LLC v. Cincinnati Insurance Co., case numbers 20-12549 and 20-13002, in the U.S. District Court for the Eastern District of Michigan.
--Additional reporting by Daphne Zhang. Editing by Vincent Sherry.
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