It depends. Even though the world may be in crisis, a written contract continues to provide a certain measure of stability. In Nevada, restaurants ceased on-site dining due to a quarantine mandate in March 2020 and restaurants continue to limit the number of guests to this day.1 Hundreds of businesses suddenly could no longer serve guests in Las Vegas. While it hurt those businesses, a recent decision by U.S. District Court clearly shows, even in a pandemic, the policy language of a contract controls what is covered, and courts will not bend the language due to COVID-19.
The Court’s View of COVID-19 Cases
One illustrative case involved a group of restaurants required to cease on-site dining effective March 20, 2020 by mandate of the Governor of Nevada.i Plaintiffs alleged the mandate caused suspension of on-site restaurant operations which triggered insurance coverage for their business interruption losses. The insurance companies filed a Motion to Dismiss because the policy did not cover the losses, and the Court agreed.ii Per the Order of Dismissal, plaintiffs in the case purchased a Restaurant Recovery Insurance Policy which separates covered items into four categories: accidental contamination, malicious tampering, product extortion, and adverse publicity. The table of contents defines the “Insured Products” as “all retail restaurant offerings served during the policy period at any time…” Under the heading “Insured Events,” the policy states, “The insurer will reimburse the insured for its loss…caused by or resulting from any of the following insured events” and then lists the events as “accidental contamination,” “malicious tampering,” “product extortion,” and “adverse publicity,” and provided a definition for each. The Court reasoned a plain reading of the policy shows it did not cover a loss of revenue due to government action because the loss did not involve one of the four categories of insured items.
Plaintiffs also argued the policy definition of insured products includes their food service to on-site customers and when Nevada suspended in-person dining, they sustained a loss. The Court did not accept plaintiffs’ interpretation and said the policy specifically defines insured products as all ingestible products for human consumption and does not define it to include the actual service of food to onsite customers.
Finally, the Court advised plaintiffs that even if food service to on-site customers was included as an insured product, the loss would be excluded under the section which states “loss arising out of a change in governmental or health authority regulations with respect to the safety of an insured product(s) or intended ingredients” is excluded. The Governor’s mandate suspended in-person dining due to safety of onsite food service. As such, the policy would still not cover the loss.
Business owners who sustain losses due to the COVID-19 pandemic are learning that even though they may have a policy of insurance in effect they do not necessarily have insurance coverage for their losses. It is critical for new businesses to exercise extra care and due diligence when selecting and purchasing business insurance. For existing businesses, an insurance coverage review may be appropriate to protect from future risks including the potential re-emergence of a global virus-based pandemic.
i Egg and I, LLC, et.al., U.S. Specialty Insurance Company, et al, Class Action Complaint, 2:20-cv-00747, U.S. District Court, S. Nev. (4/25/2020).
ii Egg and I, LLC, et.al., U.S. Specialty Insurance Company, et al, Order Granting Defendant’s Motion to Dismiss, 2:20-cv-00747, U.S. District Court, S. Nev. (2/25/2020).