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Law360 (May 6, 2021, 6:01 PM EDT) -- Regent Insurance Co. doesn't have to pay for an Iowa restaurant's losses from government shutdown orders, a federal judge ruled Thursday, saying coverage is barred for losses resulting from the COVID-19 pandemic because the virus played a role in the restaurant's closure.
U.S. District Judge Stephanie M. Rose said Lisette Enterprises Ltd., the owner of Lucca Restaurant in Des Moines, isn't covered for the business interruption losses under its Wisconsin-based insurer's all-risk policy. Even if there was a covered physical loss, the judge ruled the policy excluded losses caused by a virus.
"Plaintiff's efforts to distance its closure from the pandemic is fruitless," Judge Rose wrote. "A viral pandemic hit the United States. Iowa's governor issued the March 17 proclamation prohibiting in-person dining. Plaintiff shut down its business. The virus played a part in plaintiff's closure."
Iowa Gov. Kim Reynolds ordered all bars and restaurants to temporarily close for dine-in or in-person service but allowed takeout service. Lucca Restaurant filed suit, saying it shut down completely under the Iowa governor's order because it couldn't run on just takeout and delivery services.
In Thursday's ruling, Judge Rose dismissed the breach of contract and bad faith suit with prejudice, finding the governor's order didn't cause a "direct physical loss of or damage" to the restaurant. Rather, Lisette only lost the intended use of the property, as it denies the coronavirus was actually present at its restaurant, the judge said.
Judge Rose held Lucca Restaurant wouldn't be covered even if there was a physical loss or damage to the eatery, because the Regent policy precludes coverage for any virus. Despite the restaurant's objection, the judge said the coronavirus was present within the chain of causation, since the eatery's closure wouldn't have happened if not for the pandemic and the governor's order.
"The country has seen entire neighborhoods crushed under the pandemic's impact. Very few experts in the world could have accurately predicted the long-term economic devastation the pandemic has wrought. But the court cannot change the law or the policy language at issue here," the judge said.
Judge Rose's ruling marks the fifth dismissal with prejudice of a policyholder's business interruption suit in Iowa federal courts, all from the Southern District of Iowa, according to data from the University of Pennsylvania's COVID Coverage Litigation Tracker.
One of those suits became the first to be heard by an appellate court. The Eighth Circuit heard arguments last month in Oral Surgeons PC v. The Cincinnati Insurance Co. over whether government closure orders in response to the COVID-19 pandemic triggered business interruption insurance for an Iowa dental clinic.
Representatives for Lucca Restaurant and Regent didn't immediately respond to requests for comment Thursday.
The restaurant is represented by James W. Carney and Nicholas J. Mauro of Carney & Appleby PLC.
Regent is represented by Sean M. O'Brien of Bradshaw Fowler Proctor & Fairgrave PC and Elizabeth Kniffen and Dennis Anderson of Zelle LLP.
The case is Lisette Enterprises Ltd. v. Regent Insurance Co., case number 4:20-cv-00299, in the U.S. District Court for the Southern District of Iowa.
--Additional reporting by Jeff Sistrunk. Editing by Bruce Goldman.
For a reprint of this article, please contact reprints@law360.com.
