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Restaurants will not get help from insurance for COVID shutdown losses


Mothers and Sons Trattoria in Durham, N.C. is listed as one of the plaintiffs in the suit against Cincinnati Insurance Company. Source: foursquare.com

Staff Reports

Carolina Journal


Sixteen N.C. restaurants forced to reduce their service or close during Gov. Roy Cooper’s COVID shutdowns in 2020 will not be able to use their insurance to cover their losses. This after the N.C. Appeals Court released a unanimous ruling on Tuesday in favor of the Cincinnati Insurance Company.


In the appeal, the insurance company successfully argued that in its policies, “loss” means physical or accidental physical damage to the facilities. It does not cover a shutdown of business by an executive of the state government.



The case was an appeal by the insurance company pushing back on a 2020 decision by Judge Orlando Hudson Jr. in Durham County Superior Court. Hudson found that the 16 restaurants were covered for losses during shutdowns imposed by Gov. Roy Cooper’s March 2020 executive order. That order limited N.C. restaurants’ ability to serve indoors and forced them to scale back their employees and income by offering “to-go” service only.


“The Policies provide coverage for Business Income and Extra Expenses for Plaintiffs’ loss of use and access to covered property mandated by the Governmental Orders as a matter of law,” Hudson’s original decision read.


Appellate Judges Chris Dillon, Toby Hampson, and April Wood disagreed.


“Recent cases from the Fourth Circuit have agreed that similar or identical policy provisions do not provide coverage for business interruption losses due to COVID-19 governmental orders because there is no direct physical loss or damage to the insured property,” Dillon wrote.


According to the decision, the restaurants’ insurance policies read, “We will pay for the actual loss of ‘Business Income’ … you sustain due to the necessary ‘suspension’ of your ‘operations’ during the ‘period of restoration.’ The ‘suspension’ must be caused by direct ‘loss’ to property at a ‘premises’ caused by or resulting from any Covered Cause of Loss.”


The restaurant owners claimed that their “loss of use” of their restaurant under Cooper’s executive order amounted to a physical loss.


“According to the plain language of the Policies, only direct, accidental, physical loss or damage to the property is covered,” the appellate judges ruled. “Therefore, the trial court erred in granting partial summary judgment to Plaintiffs on their First Claim for Relief.”


According to an April 2020 letter sent to Cooper from the N.C. Restaurant and Lodging Association, the organization urged him to let restaurants reopen. According to NCRLA, 77% of N.C. restaurants at that time said their sales were down 70% or more during the restrictions and most, 65% of restaurants, said they would not survive a 60-day shutdown. It was not until March 23, 2021, that Cooper issued Executive Order 204, allowing restaurants to reopen at 75% capacity indoors.


Only 35% of the restaurateurs who applied for the PPP federal relief program received loans. The majority — 65% who applied — did not receive loans.

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