Restaurant's COVID-19 Coverage Trial Kicks Off In Louisiana

By Cara Salvatore
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Law360 (December 14, 2020, 11:47 PM EST) -- A groundbreaking COVID-19 insurance trial began Monday in Louisiana, where a large restaurant told a judge that a group of underwriters at Lloyd's of London needs to cover losses from diminished dining capacity and the underwriters insisted the virus isn't property damage.

In the trial, which follows a first-of-its-kind lawsuit filed in mid-March, the 500-seat restaurant Oceana Grill sued its underwriters at Lloyd's of London. The suit came just after New Orleans' mayor had implemented a lockdown order as the virus was embarking on its first major U.S. spike.

The grill said its "all risk" policy ought to cover the virus's presence on physical surfaces as property damage and trigger business interruption coverage.

When the underwriters sold Oceana the policy, an "exclusion that excluded damage from the virus was not in it," a lawyer for Oceana owner Cajun Conti LLC, John Houghtaling II, said in opening arguments Monday morning.

And his co-counsel, Rico Alvendia, said the Lloyds underwriters were going to argue that surfaces can be cleaned, and "If you can clean something, it's not damage."

"Really?" Alvendia said. "We know this. COVID-19 cannot be stopped in the air. You breathe it out. That's why I'm wearing a shield right now. That's why you have Plexiglas in front of you, judge," Alvendia said to Judge Paulette Irons, who is overseeing the in-person bench trial, which the court made accessible via Zoom.

Lloyd's has long known about the concept of virus exclusions, Alvendia argued, saying the policy's author discussed it with the state's insurance commissioner in 2006, in the wake of the SARS outbreak. In those conversations, the insurer's argument was that "viruses contaminate property," Alvendia said. But Oceana's policy ultimately did not bear a virus exclusion.

The underwriters, meanwhile, suggested in their own openings Monday that there was no business interruption for a restaurant that admittedly remained open for business — albeit with fewer tables and fewer staff — and insisted the virus doesn't create property damage.

"The virus attacks our lungs. It doesn't attack tabletops. The virus, judge, attacks hearts and blood vessels. It doesn't attack barstools," said the Lloyd's underwriters' lawyer, Allen Miller of Phelps Dunbar LLP.

"This virus and disease that we have all been having to deal with for the last nine months, it damages people; it doesn't damage property," Miller said.

The trial's first witness, meanwhile, was the general manager of the restaurant, who testified that before COVID-19, the restaurant served 1,600 diners per day. He said Cajun Conti paid $91,000 in annual premium for the policy, but said the pandemic has "suffocated" and "devastated" the restaurant.

Last month, Judge Irons denied the underwriters' bid to subpoena Alvendia over texts to an aide to New Orleans Mayor LaToya Cantrell before Cantrell's March 16 shutdown order. The underwriters contended Alvendia was lobbying for the order to include language conveying that the virus caused physical damage to property because it attaches to surfaces.

Oceana had responded that Alvendia was rightly blowing the whistle on a plan by insurers to deny coverage, based on a March 11 memo by a law firm that has represented insurers. The memo warned that if government shutdown orders didn't specify that COVID-19 caused physical damage, insurers could use that omission as a way to deny coverage, Houghtaling told Law360 in November.

The Lloyd's underwriters have stipulated that they denied the coverage claim. Trial is set to continue Tuesday afternoon.

Cajun Conti is represented by John Houghtaling II, Jennifer Perez and Kevin Sloan of Gauthier Murphy & Houghtaling LLC, Daniel Davillier of Davillier Law Group LLC, Roderick "Rico" Alvendia, J. Bart Kelly III, Jeanne Demarest and Kurt Offner of Alvendia Kelly & Demarest LLP, James Williams of Chehardy Sherman & Williams, and Desiree Charbonnet of Law Office of Desiree M. Charbonnet LLC.

Lloyd's is represented by Virginia Dodd, Kate Mire, Kevin Welsh, Allen Miller and Thomas Peyton of Phelps Dunbar LLP.

The case is Cajun Conti LLC et al. v. Certain Underwriters at Lloyd's, London et al., case number 2020-02558, in the Civil District Court for the Parish of Orleans, State of Louisiana.

--Additional reporting by Jeff Sistrunk. Editing by Michael Watanabe.

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