The Difference in the Outcome of Your COVID-19 Business Interruption Suit May Depend on Which Court You File In

In June, we noted in Louisiana Appellate Court Finds Coverage For Covid Business Losses, the Louisiana Fourth Circuit Court of Appeal opinion¹ reversing a trial court’s judgment against an insured business affected by COVID-19. The case, Cajun Conti LLC, Cajun Cuisine 1 LLC, and Cajun Cuisine LLC d/b/a Oceana Grill v. Certain Underwriters at Lloyd’s, London and Governor John B. Edwards in his official capacity as Governor of the State of Louisiana, and the State of Louisiana, involves a popular New Orleans restaurant, known as Oceana Grill, which requested the trial court declare Business Interruption coverage existed under their policy. This type of request is referred to as a “Petition for Declaratory Relief,” as opposed to a request that a court compels another party to pay for losses that were caused by that party (referred to as a “Petition for Damages”).

In September, a writ was filed in the Louisiana Supreme Court in this matter, which is still pending as of November 11, 2022.

Of note, the policy was an (1) all risks policy, (2) its language stated that it covered losses due “direct physical loss of or damage to,” and (3) plaintiff(s) presented an expert witness who found that there was an “overwhelming probability” that someone infected with COVID-19 had entered the premise and that viral particles could survive in the air for a period of time and contaminate surfaces. The appeal court found that the restaurant successfully proved that COVID-19 particles were physically present in the restaurant, and its presence resulted in economic losses to the restaurant because the restaurant had to eliminate seating to increase space between available seating, which resulted in the “slowing down” of the restaurant’s business. (The appeals court was clearly aware that the City of New Orleans actually mandated this rearranging of seating).

Cajun Conti does not open the floodgates for COVID-19 business interruption suits. Instead, it provides some hope for businesses in Orleans, St. Bernard, and Plaquemines Parishes that their business interruption coverage may be found to have been triggered by city local ordinances or mandates to cease operations or operate with reduced and further dispersed seating, depending on the exact language in those businesses’ policies and whether they too can provide evidence of the physical presence of COVID-19 on their premises.

Contrast that with the following decision rendered in the United States Court of Appeals for the Fifth Circuit:²

The case title in the caption of the United States Fifth Circuit Court of Appeals reads, “Coleman E. Adler & Sons, L.L.C.; Royal Cloud Nine, L.L.C.; Latrobe’s on Royal, L.L.C. v. Axis Surplus Insurance Company, incorrectly named Axis Surplus Lines Insurance Company, Risk Placement Services, Incorporated; Unidentified Parties; Marsh & McLennan Agency, L.L.C.” This case title is a bit amusing and atypical as it features the italicized phrase “incorrectly named Axis Surplus Lines Insurance Company,” the use of italics, and “Unidentified Parties.” Unfortunately, the case results are not amusing or atypical in COVID-19 suits filed by businesses.

This suit, involving a jeweler, also involves a New Orleans business. It was filed in state court but later removed to the federal court by a defendant. The federal district court and, later, the appellate court examined the policy language “direct physical loss of or damage to property,” which is similar to the language contained in the policy at issue in Cajun Conti. The federal district trial court found that Adler did not provide evidence that his properties suffered any such loss or damage and the U.S. Fifth Circuit agreed.

Adler attempted to use Cajun Conti to suggest the Fifth Circuit should find coverage since a Louisiana court found that coverage existed in a case with similar policy language. However, the Fifth Circuit noted that its rules do not allow the Circuit Court to rely on a Louisiana intermediate state court’s ruling to interpret the policy and affirmed the federal trial court.

In conclusion, the outcome of your case may be decided by the court (federal or state) system in which you file. Cajun Conti was filed in the state court system, and the appellate court found that coverage existed. The Adler suit was filed in state court, but defendant Marsh & McLennan Agency, an insurance agency that Adler added to the suit for failing to recommend Pandemic coverage, had the suit removed to federal court. (We will soon post an article about Louisiana’s requirements for “agent liability,” which were discussed in the Adler decision). The trend seems to be that most suits filed by businesses for losses sustained because of COVID-19 are not successful. However, there may be some hope for businesses in Orleans, St. Bernard, or Plaquemines Parishes that are not removed to federal court, at least until the Louisiana Supreme Court addresses the issue. If those businesses’ policies contain similar language to “direct physical loss of or damage to property,” then there is a chance those businesses may be successful in their lawsuit against their insurer.

We are following Cajun Conti closely and will update you after the Louisiana Supreme Court has spoken.
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¹ Cajun Conti v. Certain Underwriters at Lloyd’s, London, No. 2021-CA-0343 (La. App. June 15, 2022).
² Coleman E. Adler & Sons, LLC v. Axis Surplus Ins. Co., No. 21-30478 (5th Cir. Sept. 20, 2022).