Insurance Law

Restaurants can't recover COVID-19 losses through ‘business interruption’ insurance, 2 top state courts rule

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The top state courts in Iowa and Massachusetts have ruled that restaurants can’t recover COVID-19 shutdown losses from "business interruption" policies.

The Iowa Supreme Court ruled April 22 (here and here), while the Massachusetts Supreme Judicial Court ruled April 21 (here), report Reuters and

The Associated Press and the Des Moines Register also have coverage of the Iowa ruling, while Law360 also has coverage of the Massachusetts ruling.

The Iowa court ruled against the Wakonda Club and Jesse’s Embers, both located in Des Moines, Iowa. They claimed losses under business-interruption insurance after Gov. Kim Reynolds’ orders caused them to close in March 2020 and then limit operations.

The restaurants’ business-interruption insurance had covered a direct physical loss or damage to property. The Iowa Supreme Court said the shutdown didn’t constitute such a loss.

“The mere loss of use of property, without more, does not meet the requirement for a direct physical loss of property,” the Iowa Supreme Court said.

The Iowa Supreme Court said its decision was based on Iowa law, but it noted that every other federal appeals court that has ruled on similar policy language has ruled for insurers.

The Massachusetts Supreme Judicial Court ruled against Coppa, Toro and Little Donkey restaurants in Boston and Cambridge, Massachusetts. The case also involved insurance policies that cover a direct physical loss or damage to property.

“We conclude that ‘direct physical loss of or damage to’ property requires some ‘distinct, demonstrable, physical alteration of the property,’” the Massachusetts Supreme Judicial Court said.

Two restaurants had shut down in-person dining and a third closed for business following a March 2020 order by Gov. Charles Baker. All three allowed limited in-person dining in June 2020 when Baker modified his order.

See also: “Insurers rack up early wins in lawsuits over COVID-19 ‘business interruption’ coverage” “Coronavirus pandemic prompts wave of ‘business interruption’ lawsuits by restaurants”

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