A Kansas City federal judge has cleared a group of restaurants to claim a COVID-related business disruption for a jury trial, ruling that an 8th Circuit Court ruling that found no coverage was due in a separate case does not apply to a trial that alleges SARS-CoV-2 was physically present.
U.S. District Judge Stephen R. Bough issued summary judgment on Tuesday dismissing claims against Cincinnati Insurance Co. for civil authority and entry and exit coverage, but allowed KC Hopps’ claim that the coverage was due because the virus was physically present in its bars and restaurants to proceed with the trial.
“Whether the virus was present at the complainant’s premises, whether it actually caused physical loss or damage to the complainant’s premises, and the extent of the complainant’s damage due to this ‘loss’ is a question of fact. ‘it is better to leave it up to a jury to decide. “Bough wrote in his order.
Bough is among a small minority of federal judges who have dismissed insurers’ petitions to dismiss lawsuits to cover lost income due to the COVID-19 pandemic. In fact, the person named by Barack Obama issued three of 22 federal judicial orders that dismissed insurers’ requests to dismiss such claims.
KC Hopps has nine restaurants, bars, food services, and event spaces in the Kansas City metro area, which spans both Missouri and Kansas. The company filed a lawsuit after Cincinnati denied its request to recover lost revenue after it was forced to scale back operations due to the coronavirus pandemic.
Most federal and state judges have dismissed similar lawsuits. Additionally, the 8th Circuit – whose jurisdiction includes Missouri – on July 2 upheld a ruling that a dental surgery office could not recoup lost revenue due to government orders requiring it to restrict operations due to of the coronavirus.
Bough’s order, however, notes that the 8th Circuit did not consider whether the physical presence of the virus on the properties could cause direct physical loss covered by an insurance policy. Oral Surgeons alleged in its lawsuit against Cincinnati Insurance that it had lost income due to civil authority orders that limited its practice to emergency care.
“However, the 8th Circuit has not determined that SARS-CoV-2 can never cause ‘physical loss’ or ‘physical damage’,” Bough’s order said.
Bough also rejected Cincinnati’s argument that no coverage would be due even if there had been a physical loss, as the restaurant group received more forgiven paycheck protection loans than its alleged losses. The judge said the P3 program was intended to ensure employees continue to receive paychecks, not to reimburse business owners for lost earnings.
On the other hand, Bough granted Cincinnati’s petition to dismiss KC Hopps’ claims for civil authority coverage and entry and exit covers because government orders did not restrict owners’ access to their properties.
Insurance defense attorney Roy A. Mura told the Claims Journal after the 8th Circuit ruled its decision would have limited impact because the appeal panel did not address whether the physical presence of a virus can cause loss or physical damage. On Tuesday, he posted a brief analysis of Bough’s opinion on his Linkedin page.
“To my knowledge, this is the first published ruling on the PPP loan argument,” he wrote. “Judge Bough’s circumvention of the 8th Circuit decision in oral surgery is also interesting. “
Bough also authorized Studio 417 Inc. to bring a separate legal action against Cincinnati Insurance. This case was consolidated with a lawsuit brought by another group of business owners seeking coverage from Cincinnati Insurance for loss of earnings related to COVID. The plaintiffs are asking for class action status.
About the photo: Barley’s Brewhouse in Shawnee, Kansas, shown here in a photo posted on its website, is among a group of restaurants and other businesses in the Kanas City area that have filed a lawsuit asking for coverage at Cincinnati Insurance Co.
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