A restaurant in the heart of the New Orleans tourism district filed a lawsuit on Monday asking a state judge for a declaratory judgment that its business interruption policy will cover its damages if it is ordered to close by civil authorities in response to the coronavirus.

Although it was not clear when the suit was filed whether an emergency order by Gov. John Edwards would force the closure of the Oceana Grill, attorney John W. Houghtaling II said it would be irresponsible not to get in front of the issue and protect his client’s rights. He said insurance agents around the country — possibly being coaxed by insurers — have been irresponsibly telling business owners that their business interruption policies won’t cover shutdowns caused by coronavirus.

“I can’t imagine how defense counsel are going to walk into court and say that coronavirus does not cause damage to property or contaminate property,” said Houghtaling, who is majority owner of Gautheir Murphy & Houghtaling in Metairie, La. “I’ve talked to restaurant owners from here to New York City, and they all are being told the exact same thing by their agents.”

A Dallas attorney who represents insurance carriers said the lawsuit filed in Orleans Parish Civil District Court is premature.

“The normal process is for the policyholder to file a claim, let the insurance company evaluate the coverages under the policy and then determined whether coverage exists,” said Steven J. Badger, a partner with Zelle LLP.

The Oceana Grill serves up Cajun fare in a sprawling space that seats 500 at the corner of Conti and Bourbon Streets in the French Quarter. Normally the restaurant is packed even on weekdays, Houghtaling said, but the coronavirus has thinned the hordes of tourists who usually prowl Bourbon Street.

New Orleans Mayor LaToya Cantrell on Monday ordered all restaurants in the city to limit operations to delivery only. That follows an order by the governor on Friday that barred any congregations of more than 250 people. On Tuesday, Louisiana’s governor closed bars and restricted restaurants to takeout orders until April 13 to prevent the disease’s spread.

Houghtaling argues in a petition filed with the district court that any damages caused by a shutdown are a “real physical loss” that is covered by Oceana’s “all risk” business insurance policy with Lloyd’s of London syndicates. The all risk policy does not provide any exclusion due to losses, business or property from a virus or global pandemic, according to the petition.

Also, according to the complaint, the coronavirus is “physically impacting public and private property, and physical spaces in cities around the world” and “any effort by Lloyd’s to deny the reality that the virus causes physical damage and loss would constitute a false and potential fraudulent misrepresentation that could endanger policyholders and the public.”

The lawsuit maintains that the virus physically infects and stays on surfaces for up to 28 days and that a contamination of the insured premises by the virus would be a “direct physical loss needing remediation to clean the surfaces of the establishment.”

It likens the coronavirus infection to cases where the intrusion of lead or gaseous fumes has been found to constitute a direct physical loss.

The complaint formally asks the judge to affirm that because the policy does not contain an exclusion for a viral pandemic, there is business income coverage for any future civil shutdowns of restaurants due to physical loss from coronavirus contamination.

In a telephone interview, Houghtaling said his client could have self-insured for a business interruption but chose to set aside a portion of its earnings to buy insurance coverage.

He said he became concerned that Lloyd’s would deny coverage after reading a column posted online last week by Zelle attorney Shannon O’Malley that asserted coronavirus shutdowns do not cause direct physical loss or damage to property and would not be covered. Zelle often represents Lloyd’s in coverage disputes.

Houghtaling argues that coronavirus lives on surfaces for as long as 28 days, particularly in humid areas at temperatures below 84 degrees, and thus contamination would be a direct physical loss.

But lawyers do not agree on the facts any more than they do on principles. Zelle’s O’Malley said in her column that the virus lives for only two hours to nine days on surfaces. A study by the National Institute of Health concluded the virus can live on surfaces for up to three days.

Any business interruption claims may be denied because government shutdowns are usually ordered as a precaution, not because of known contamination, if Zelle attorneys are to be believed. Coverage can also be limited by the duration of any contamination.

“In some ISO forms, the period of restoration has a waiting period, such as 72 hours, before coverage begins. And the period lasts only as long as it should take to repair the physical loss or damage using due diligence and dispatch,” O’Malley wrote in her column. “If the ‘physical damage’ is the particles of virus on surfaces of a building, how long should it reasonably take to use soap and water, or bleach, to clean those surfaces?”

Badger said his colleague O’Malley’s column was one of the better analyses he’s seen. He said he agreed with her that insurance policies provide coverage only if there is a direct physical loss.

“Whether there is coverage for business losses arising out of civil authority orders is dependent on policy language,” he said in an email. “Insurers will have to consider the reasons behind the civil authority order, including whether they are reactive to property damage or proactive to avoid future damage or injury, and the breadth of those orders.”

Editor’s Note: Since the petition was filed, Louisiana has restricted the business of its courts; the effect of this shutdown on this case is not yet clear.

*This article was previously published by our sister publication Insurance Journal