By Shane Dilworth

Law360 (July 7, 2021, 5:04 PM EDT) -- The owners of an Italian restaurant and two related hotels in the Buffalo, New York, area can't tap their insurance coverage for business interruption from a Hartford unit after a New York federal judge on Wednesday ruled the hospitality companies hadn't shown they suffered an actual loss or damage as required by their policy.

U.S. District Judge Geoffrey W. Crawford found that Salvatore's Italian Garden Inc., Garden Place Inc. and The Delavan Hotel LLC's suit failed to show that Hartford Fire Insurance Company breached their policy when finding that its civil authority provision did not apply to their losses.

The judge explained that coverage under the civil authority provision was not as broad as the businesses implied and that executive orders issued by Gov. Andrew Cuomo and the New York Department of Health in March 2020 were implemented to stop the spread of the coronavirus, not because of physical damage to the businesses' properties.

The businesses said their operations were "significantly interrupted" by the executive orders, which limited large gatherings and closed nonessential businesses. The policyholders complained that Garden Place and Salvatore's shut their doors and furloughed a combined 300 employees after the orders. The Delavan Hotel, meanwhile, did not have to close, but its operations were restricted, according to Judge Crawford's order.

Judge Crawford pointed out that the orders listed both hotels and restaurants as essential businesses permitted to remain open with limitations; for instance, the latter were allowed to offer only take-out and delivery services. He explained that in order for the civil authority provision to apply, the policyholders were required to show that their properties were damaged by the presence of the virus and that the orders prevented them from being able to use the properties.

"Apart from alleging that the coronavirus itself is deadly and can remain on surfaces for extended periods of time, the complaint does not identify physical loss or damage to any of plaintiffs' properties," Judge Crawford wrote.

The policyholders include Italian Prime at Salvatore's, Salvatore's Garden Place Hotel and Delavan Hotel & Spa, related businesses owned by the Salvatore family since the Italian restaurant opened on the east side of Buffalo in 1938, according to the businesses' website.

The policyholders asked Hartford to cover losses they incurred as a result of pandemic-related stay-at-home orders. After the insurer denied their claim, the businesses initiated an action in June 2020 seeking declarations that coverage was warranted under the civil authority provision, that the executive orders prevented them from using their properties, and that the policy's virus exclusion was inapplicable.

Hartford moved to have the suit tossed in August, saying the businesses were unable to show that their properties suffered any physical damage — thereby rendering the civil authority provision inapplicable — and that the virus exclusion precluded coverage.

Neither Hartford nor counsel for the parties immediately responded to requests for comment on Wednesday.

The plaintiffs are represented by John E. Richmond of Richmond Vona LLC, Arnold Levin, Laurence Berman, Frederick Longer and Daniel Levin of Levin Sedran & Berman LLP, Richard M. Golomb and Kenneth J. Grunfeld of Golomb & Honik PC and W. Daniel "Dee" Miles III, Rachel N. Boyd and Paul W. Evans of Beasley Allen Crow Methvin Portis & Miles PC.

Hartford is represented by Eugene Welch of Tully Rinckey PLLC and Charles Michael, Meghan Newcomer and Sarah D. Gordon of Steptoe & Johnson LLP.

The case is Salvatore's Italian Gardens Inc. et al. v. Hartford Fire Insurance Co., case number 1:20-cv-00659, in the U.S. District Court for the Western District of New York.

--Editing by Janice Carter Brown.

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