The insurer said a Virginia federal judge correctly ruled that Skillets LLC was not improperly denied coverage for losses from government shutdown orders when its case was dismissed in March, and that despite any “creative” arguments the restaurant might make, it can’t get around the policy’s requirement for physical loss or damage.
Specifically, Colony said U.S. District Judge Henry E. Hudson did not err in finding that any structural changes the Florida-based restaurant made to mitigate the risk of the virus, such as moving tables or putting up barriers, did not constitute a direct physical loss or damage, nor did the virus’ alleged presence on surfaces, according to the brief.
Those claims have also been flatly rejected by Florida courts in more than 30 similar cases, and many others courts around the country, Colony said.
“Such ‘threat, spread, and/or presence of the virus’ allegations do not implicate coverage, as there is no actual physical, property damage involved,” the insurer told the appellate court.
Skillets’ counsel Timothy W. Burns of Burns Bowen Bair LLP told Law360 on Wednesday that there is no authority on how a Florida appellate court will rule on COVID-19 coverage cases because none has yet done so.
“Even though not a single Florida appellate court has ruled against coverage for COVID-19, Colony Insurance Company’s brief maintains that Florida case law favors them,” Burns said.
The Eleventh Circuit is currently considering whether to uphold the dismissal of a Florida steakhouse’s COVID-19 suit. Rococo Steak LLC appealed its case in May, claiming it suffered physical loss or damage to its property from the virus and government closure orders.
Burns added that he is hopeful the Fourth Circuit will do what he suspects very few trial court judges have done and “read every word of one of these insurance policies before making pronouncements about what an isolated term means.”
“After reading one of these confused monstrosities, word for word, a court is likely to approach these questions with a great deal of humility and may even do what the law commands — give undefined terms the meaning that an ordinary layperson would give to them,” he said.
Skillets, which operates nine restaurants in southwest Florida with Good Breakfast LLC, sued Colony last year in a proposed class action, claiming the insurer wrongfully denied it coverage for pandemic-related losses after it was forced to temporarily stop in-person dining.
In its appeal of Judge Hudson’s ruling to the Fourth Circuit in June, the restaurant argued its coverage was triggered by the loss of use and diminishment of its properties because the virus structurally altered its restaurants’ air and surfaces.
Colony said in its response that Skillets has failed to cite any Florida cases addressing the COVID-19 coverage issue and has instead asked the court to follow “outlier” cases that do not involve virus claims or have different policy language.
“Courts in Florida, and with very few exceptions, courts across the entire United States, have recognized that business closures associated with COVID-19 government shutdown orders do not constitute business interruption caused by ‘direct physical loss of or damage to” property,” Colony said.
And, the insurer argued, Judge Hanson had appropriately agreed with those decisions.
Colony further noted that a sister appellate court, the Eighth Circuit, weighed in for the first time earlier this month that “there must be some physicality to the loss or damage of property — e.g., a physical alteration, physical contamination or physical destruction,” for coverage to be triggered.
The Fourth Circuit has yet to rule on another COVID-19 business interruption case dismissal by an art gallery against Cincinnati Insurance Co. Uncork & Create was the first business to appeal its case to the appellate court in May, claiming a West Virginia federal court wrongly asked it to show its employees had been infected by the virus and had caused physical loss.
Counsel for Colony declined to comment.
The Skillets Restaurants are represented by Timothy W. Burns and Brian P. Cawley of Burns Bowen Bair LLP, Lisa S. Brook and Kyle McNew of MichieHamlett PLLC, Adam J. Levitt and Kenneth Abbarno of DiCello Levitt Gutzler LLC, and W. Mark Lanier of The Lanier Law Firm PC.
Colony is represented by William F. Stewart and Gary W. Berdeen of Stewart Smith Law.
The case is Skillets LLC et al. v. Colony Insurance Co., case number 21-01268, in the U.S. Court of Appeals for the Fourth Circuit.
–Additional reporting by Shawn Rice, Hailey Konnath, Daphne Zhang and Joyce Hanson. Editing by Haylee Pearl.