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Insurer Says Seafood Chain's Loss Is Not Coronavirus' Fault

By Shawn Rice · June 3, 2021, 4:20 PM EDT

Strathmore Insurance Co. argued to the First Circuit on Wednesday that a lower court got it right as a seafood chain's losses from closing during the COVID-19 pandemic weren't from the presence of the coronavirus causing a physical loss or damage at its properties.

Rather, Legal Sea Foods LLC temporarily shut down its 32 restaurants under public health orders, the insurer said in its appellee brief, even though it was allowed to offer takeout and delivery service. Even if the virus was present, Strathmore argued, there wasn't any "direct physical loss of or damage to" property.

"This has been the unanimous conclusion reached by every Massachusetts court that has analyzed the issue, as well as the majority of cases nationally, and it is supported by ample Massachusetts case law applying the plain meaning of that requirement," Strathmore said, referring to the "direct physical loss of or damage to" prerequisite.

In May, Legal Sea Foods appealed a Massachusetts federal judge's ruling that "physical loss of or damage" requires impact to "structural integrity." U.S. District Judge Nathaniel M. Gorton had tossed the COVID-19 business interruption suit against Strathmore, finding that the coronavirus didn't cause any damage to the restaurants.

The seafood chain also urged the appellate court to send its suit to the Massachusetts Supreme Judicial Court to address whether Strathmore's policy requires the "structural integrity" of the restaurants to have been affected by the coronavirus to trigger coverage.

That same month, Strathmore pushed back against the seafood chain's bid to have the business interruption suit taken up with the Massachusetts high court. Strathmore called the policyholder's efforts nothing more than "forum shopping," as the case doesn't offer any real dispute under Massachusetts law.

Legal Sea Foods' appeal has garnered the backing of nonprofit insurance trade group United Policyholders, which told the First Circuit that Judge Gorton was wrong to disregard Strathmore's decision not to include a virus exclusion in the policy as well as statements made to New York regulators.

But Strathmore argued in Wednesday's brief that Judge Gorton was correct to ignore that extrinsic evidence. The insurer also said Legal Sea Foods' allegations clearly reveal that the restaurants were forced to close under government orders, not from any COVID-19 cases at its locations along the East Coast.

"Legal does not even allege it closed any restaurant (or a portion thereof) to repair or replace any property allegedly touched by coronavirus, or to remove any virus-laden 'droplets' that allegedly landed on surfaces or objects or were temporarily present in the indoor air," the insurer added.

And the coronavirus particles in the air wouldn't have caused any physical damage, according to Strathmore, as the virus only harms human beings, not property, and can be removed with routine cleaning.

A representative for Strathmore declined to comment Thursday.

Representatives for Legal Sea Foods did not immediately respond to a request for comment.

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 Linda L. Morkan 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 Rachel Scharf and Chris Villani. Editing by Haylee Pearl.

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