The Supreme Judicial Court ruled today that the insurers for Coppa and Toro in the South End and Little Donkey in Central Square do not have to reimburse owner Ken Oringer for Covid-19 losses because the virus did not cause the permanent damage to his tables and other furnishings that might be covered under his "all risks" policies.
Like a number of other restaurant owners, Ken Oringer sued his insurers after he had to at lest partially shut the restaurants in 2020 following Gov. Baker's emergency declaration on Covid-19. In a suit filed in Suffolk Superior Court in June, 2020, he sought $3 million in reimbursement from two insurance companies.
Unlike more recent claims by other restaurant owners, he did not argue that the virus physically changed table surfaces or the air itself, but rather that the presences of the virus, coupled with the governor's order, caused losses by rendering his property unusable, and that the "all risk" polices he paid extra for covered not just "damage" but "losses."
According to his lawyers' argument:
The insureds here allege that they lost, i.e., were deprived of, use of and access to their properties because of a deadly substance that would inevitably be present and spread if the properties were normally used and accessed. They allege that the properties, used as intended, were not safe or habitable, rendering them useless or of greatly reduced utility.
The state's highest court, however, rejected that argument completely, on several grounds, starting with its analysis that even "losses" under what it acknowledged were "somewhat inaccurately referred to" as "all risk" policies need to be accountable to something that makes permanent changes in the property, which it said Covid-19 viruses do not.
We conclude that "direct physical loss of or damage to" property requires some "distinct, demonstrable, physical alteration of the property." Couch on Insurance. ... Every appellate court that has been asked to review COVID-19 insurance claims has agreed with this definition for this language or its equivalent. ...
The allegations in the complaint do not support recovery under this definition. Although caused, in some sense, by the physical properties of the virus, the suspension of business at the restaurants was not in any way attributable to a direct physical effect on the plaintiffs' property that can be described as loss or damage. As demonstrated by the restaurants' continuing ability to provide takeout and other services, there were not physical effects on the property itself. It is only these effects that would trigger coverage under either the property or the business interruption coverage forms.
As the plaintiffs seem to accept, the COVID-19 orders standing alone cannot possibly constitute "direct physical loss of or damage to" property, for the same reason that loss of legal title or other government restrictions cannot themselves physically alter property.
The court then described the virus, in terms of damage to a restaurant as "evanescent" and so, not subject to insurance coverage for permanent damage:
Evanescent presence of a harmful airborne substance that will quickly dissipate on its own, or surface - level contamination that can be removed by simple cleaning, does not physically alter or affect property. ... While saturation, ingraining, or infiltration of a substance into the materials of a building or persistent pollution of a premises requiring active remediation efforts is sufficient to constitute "direct physical loss of or damage to property," evanescent presence is not.
Likewise, the court continued, Gov. Baker's order, which barred in-restaurant dining across the entire state, and so within a one-mile radius of each restaurant, resulted in no permanent changes to the restaurants' physical property - as the restaurants themselves proved by keeping their kitchens open, two to sell food for takeout, the third to make food for front-line workers.
For the same reasons that the presence of the COVID-19 virus at the restaurants themselves did not cause damage to property under the business interruption coverage forms, the virus did not cause "damage" to the properties within one mile of the restaurants. Sanzo Enters. LLC, 2021-Ohio-4268, ¶¶ 59-61. Furthermore, the term "loss" is absent, precluding any argument that coverage can be based on the loss of possession or use of the surrounding buildings. Therefore, the plaintiffs' claim based on the civil authority coverage was also correctly dismissed.
Oringer's LLCs that are the legal owners of the three restaurants did receive $3.36 million in federal Payroll Protection Program grants in 2020 and 2021.
Briefs in the case.