Legal Sea Foods LLC, the East Coast seafood chain appealing the dismissal of its suit, asked that the Massachusetts high court be allowed to answer whether the policy requires the "structural integrity" of the insured's restaurant to have been impacted by the coronavirus to trigger coverage for loss or damage.
The seafood business said there isn't any Massachusetts high court precedent supporting U.S. District Judge Nathaniel M. Gorton's ruling that "physical loss of or damage" requires impact to "structural integrity." Judge Gorton tossed the suit, finding that no physical loss or damage was caused by the coronavirus.
"This case presents purely state-law issue — an issue of great and growing importance to Massachusetts business owners. In the last month alone, three other insurance-coverage appeals have been lodged in this court, and more are sure to follow, all raising the same issue," Legal Sea Foods said.
Legal Sea Foods filed suit, alleging Strathmore is responsible for losses caused by it having to shut down 32 of its restaurants under government orders to curb the spread of COVID-19. In the March ruling, Judge Gorton held that the restaurant chain didn't actually allege the coronavirus was present at its locations and that a physical loss required "some kind of tangible, material loss."
On Monday, Legal Sea Foods also filed its opening brief to the First Circuit, arguing that Judge Gorton was wrong to find the coronavirus is too "transient" to cause loss or damage to the restaurants. It was improper to require the loss or damage from the virus to be permanent, the restaurant chain said.
For 50 years, Legal Sea Foods said that courts have found a physical loss occurs when a policyholder's property is uninhabitable or unfit for its intended purpose. And physical damage happens when property is physically altered to the point it adversely affects functionality, the restaurant chain argued.
"That is exactly what Legal Sea Foods alleged here: The virus, residing in indoor air and on surfaces, caused Legal Sea Foods' property to become physically unfit for human occupancy," the restaurant said.
Michael S. Levine of Hunton Andrews Kurth LLP, counsel for Legal Sea Foods, told Law360 on Tuesday that his client believes the policy's interpretation "presents a quintessential question of state law."
"Legal Sea Foods believes that Massachusetts law supports its interpretation of the Strathmore policy, which Strathmore issued in March of 2020 without a virus exclusion," Levine said, noting that there isn't any binding authority from the Massachusetts high court on the question being raised.
"To the extent that the First Circuit has any doubt about Massachusetts law, it should permit the Massachusetts high court to speak authoritatively on this question," Levine said.
Legal Sea Foods' bid to have the Massachusetts high court weigh in on the meaning of "direct physical loss of or damage to" is the latest attempt in business interruption coverage fights over the pandemic.
Last month, a Washington federal judge refused a request by a group of dentist and orthodontic offices to send questions to the state Supreme Court on issues surrounding physical loss and a virus exclusion.
To date, the Ohio Supreme Court is the only one to have taken up a certified question on whether COVID-19 causes property damage covered in policies. In that case, an Ohio federal judge declined to decide if an insurer was responsible for an Ohio audiology practice's losses from the pandemic.
Representatives of Strathmore declined to comment Tuesday.
Legal Sea Foods is represented by Christopher M. Pardo, Nicholas D. Stellakis, Harry L. Manion III and Michael S. Levine of Hunton Andrews Kurth LLP.
Strathmore is represented by Gregory P. Varga, Jonathan E. Small and Julianna M. Charpentier of Robinson & Cole LLP.
The case is Legal Sea Foods LLC v. Strathmore Insurance Co., case number 21-1202, in the U.S. Court of Appeals For the First Circuit.
--Additional reporting by Joyce Hanson and Daphne Zhang. Editing by Vincent Sherry.
For a reprint of this article, please contact reprints@law360.com.