Louisiana appellate court reverses COVID-19 coverage ruling
A Louisiana intermediate appellate court issued its decision in the appeal of Cajun Conti, LLC et al. v. Certain Underwriters at Lloyd’s, London et al., Case No. 2021-CA-0343, on June 15, 2022. The plurality decision of the court is notable as it is the first appellate ruling in the country to have reversed a trial court’s order in favor of insurers and find coverage under standard commercial property policy language for business interruption loss related to the COVID-19 pandemic.
The underlying case was also the first trial in a COVID-19 insurance claim matter. The insureds operate a restaurant in the French Quarter of New Orleans. During the pandemic the restaurant closed its dining room in compliance with local government orders and then operated at a limited capacity. The insureds filed suit in March 2020, seeking coverage for business interruption loss under their policy. The Louisiana state trial court denied summary judgment to the insurers, then proceeded to a bench trial where it ruled in insurers’ favor, finding that the pandemic did not cause any “direct physical loss of or damage to” property. The policyholders appealed. In the attached ruling, the appellate court reversed in a fractured opinion, with a plurality opinion by two judges, a concurrence by one judge, and dissent joined by two judges.
The plurality opinion ruled that the phrase “direct physical loss of or damage to” insured property was ambiguous in the context of the specific facts of the case, relying on prior Louisiana decisions in Chinese drywall and lead contamination matters. The opinion further concluded that the policy definition of “suspension”, which included a “slowdown” of operations, was satisfied by the reduced capacity of the restaurant caused by the need for social distancing. The plurality did not agree with the federal Louisiana decisions holding to the contrary, noting they were not binding, and instead relied on out-of-state cases, not in the COVID-19 context, which found pervasive asbestos contamination, odors from methamphetamine production, and carbon monoxide contamination sufficient to qualify as “physical” loss or damage. The opinion further ruled that a “cycle of cleaning and decontamination” can be a reasonable interpretation of “repair” under the period of restoration provision, and found significant the availability of virus exclusions that were not included in the policy.
The brief concurring opinion did not join the reasoning of the plurality, but concurred in the result on the basis that the court was bound by the prior ruling in a lead contamination matter.
The dissenting judges found no ambiguity in the policy, and also found no error in the trial court’s conclusion following the bench trial that there was no “direct physical loss of or damage to” the insureds’ property due to the COVID-19 pandemic. The judges agreed with the reasoning of the Louisiana federal court cases that had distinguished the Chinese drywall and lead contamination cases, and further noted that the policy at issue contained a specific exclusion for loss of use.
The impact of the plurality decision remains to be seen. The insurers may well seek further review of this decision from the Louisiana Supreme Court. Federal courts will additionally be faced with the question of the relative weight to give to the two-judge plurality opinion and two-judge dissenting opinion, as well as the effect of the previous decisions from the federal Fifth Circuit applying Louisiana law to affirm decisions in favor of insurers.