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First Covid Business Interruption Insurance Case set for trial in NOLA

One of the first insurance cases in the country filed over Covid lockdown losses is scheduled for trial next week. Oceana Grill in New Orleans, La., was among the first businesses in the U.S. to file a case against its insurer for refusing to cover Covid business interruption losses. Oceana Grill filed a claim with Lloyd’s of London for business interruption coverage after the restaurant was forced to close due to government-ordered lockdowns triggered by the corona virus outbreak that first hit the U.S. this last spring.

Lloyd’s refused the claim last summer, and Oceana Grill then filed a lawsuit against the world’s oldest insurer.

Related: Frequently Asked Questions for Covid-19 Business Interruption Claims

Experts for Oceana Grill have argued in depositions preceding the trial that the facts of the case, including Lloyd’s contractual obligations, make Lloyd’s liable for covering the restaurant’s Covid-related losses.

The insurance claim that Oceana Grill has filed includes the economic damages the restaurant suffered from government-ordered shutdowns of bars and restaurants, as well as intermittent partial shutdowns that later allowed some restaurants to operate at 25 percent capacity, though with a ban on live music.

Epicenter of New Orleans Covid Outbreak

The Oceana Grill was affected by the shutdown as it was the geographic zone impacted by both the Louisiana governor’s and New Orleans’s mayor’s shutdown declarations. The restaurant’s specific location on Bourbon and Conti Streets, in fact, was located at one of the epicenters of the Covid 19 outbreak. Besides being a bar and restaurant, patrons hold cocktail parties and French Quarter weddings at the venue. 

Covid Infection on the Property

One of the sticking points of insurance lawsuits over Covid is that business owners usually have to prove they had the suspected virus on their property. Experts for the plaintiff will testify that the Oceana Grill had patrons who were diagnosed with SARS-CoV-2 infection. Specifically, the owner tested positive for CovidD-19. In addition, there were four other instances where individuals with property access reported a positive SARS-CoV-2 test. These were two office employees, a maintenance worker, and prospective employee interviewing for a position. Based on notice of the change in the property condition from safe to dangerous, portions of Oceana Grill were closed for 24 hours on various dates in April, June, and August.

Virus dispersion

The plaintiff’s experts noted that airborne transmission is the dominant route of spreading SARS-CoV-2. The virus is transmitted mainly through small respiratory droplets containing the viral particles that the infected person exhales when coughing, sneezing, or talking. The amount of virus released by the infected individual increases as the infection progresses.

Guest Counts show Business Losses

During the pre-Covid-19 period of time, Oceana Grill’s average guest count was 1,583 per day. During Phase 1, this total dropped to fewer than 100 patrons per day. During Phase 2, this increased to 667, and in Phase III it averaged 690 patrons per day.

If just one patron per day were infected with SARS-CoV-2, and that patron sneezed once every half hour for four hours, then that patron would have released two billion viral particles that would settle on the head, face and shoulders of patrons, and on the exposed surfaces of bars, tables, chairs, and drinking glasses. This is enough to infect others in the Oceana Grill. With more patrons infected, the infectivity of the restaurant grows.

Physical Damage to Property

Another sticking point in triggering business interruption coverage is proving that there was physical damage to property. Lloyd’s has claimed that there was no physical damage to the Oceana Grill property and therefore the insurance company is not liable for damage.

Plaintiffs’ experts, however, will testify that there was indeed physical damage to property. They are expected to say that, given the established infectivity of SARS-CoV-2 and the ongoing customer patronage level of Oceana Grill, the degree of environmental exposure (air and surface) at the restaurant rose to dangerous levels. The restaurant’s environment was transformed into a deleterious condition, as the virus physically transformed the air and the restaurant contents from one of safety to one of infectivity and illness. This transformation changes the structure of the surface of the restaurant contents, by a process predicted by physical law. The change in the structure is the damage, so the transformation more likely than not leads to physical damage.

Physical Damage at Molecular Level

Oceana Grill, the experts will testify, has attempted to restore the pre-CoVid-19 environment by maneuvers e.g., airing out the property, generally cleaning surfaces with bleach-based cleaners, and closing off rooms where individuals who reported COVID-19 were located for 24 hours.

While this effort is understandable, it is inadequate because 1) the effort was undone by the continued arrival of SARS-Covid-2 positive patrons and employees, and 2) the recent research of Riddle reveals that the virus is viable for up to 28 days and perhaps longer, invalidating the process of cordoning off a room for 24 hours.

NOLA’s Covid Hot Spots

The physical damage to the Oceana Grill property is at a molecular level. Based on five individuals who were discovered to be positive for SARS-CoV-2 from April 3 to August 1 2020, including the owner and several employees of Oceana (vide supra) several cases confirmed by the owner and employees of Oceana and the number of “hot spots” within the French Quarter, it’s more likely than not COV2 was in and around the restaurant for a significant period of time and caused physical damage to the property by binding to and penetrating surfaces. This is clear physical damage to property.

Physical Damage triggers Insurance Coverage

The SARS-CoV-2 virus is highly infectious. During its existence, the virus does physically alter the air and any surface the air or an infected human contact. This constitutes a physical alteration, governed by the laws of chemistry, physics, and molecular biology. These chemical and physical forces determine the virus’ ability to adhere to surfaces including, but not limited to, floors, desks, tables, chairs, stools, bottles, bar tops and sides, music equipment, microphones. This adherence cannot be seen with the naked eye because it occurs at the molecular level. The result is a dynamic process, creating a dangerous physical condition.

Specifically, this process is 1) inhabitance of the air by SARS-CoV-2, 2) transport by the air of SARS-CoV-2 to surfaces, and 3) adherence of the virus to those surfaces, rending those surfaces infective.

The surfaces are damaged by the virus’s physical contact with them. During the course of an evening, hundreds of millions of viral particles are landing on, adhering to, and being lifted from physical surfaces. This river-like flow of infectivity converted the Oceana Grill into a dangerous and infectious nest. This is a dangerous physical condition that can only be reversed by physical restoration involving chemical resurfacing.

Physical damage occurred, requiring intense physical remediation

Therefore, within a reasonable degree of scientific certainty, an expert concluded that it is more likely than not that:

  • SARS-CoV-2 viral particles were in or within 1 mile of Oceana Grill (a 1-mile radius being a prerequisite for triggering coverage)
  • SARS-CoV-2 viral particles caused a property loss or damage in or within 1 mile of Oceana Grill
  • SARS-CoV-2 particles caused a property loss or damage in or within 1 mile of Oceana Grill for an extended period of time (over 72 hours) due to continuous contamination
  • SARS-CoV-2 caused a dangerous physical condition within 1 mile of Oceana Grill
  • the Mayor and Governors reasoning that SARS-CoV-2 attaches to surfaces; (2) contaminates surfaces; and (3) causes property loss and damage was scientifically supported.

Findings that the Virus was present at Oceana Grill were based on:

1) five cases of SARS-CoV-2 positive cases involving the owner and employees of Oceana Grill and

2) the number of “hot spots” within the French Quarter and

3) the propensity of SARS-CoV-2 to disseminate airborne, it is more likely than not that based on the concentration of cases that SARS-CoV-2 was continuously in and around the restaurant for a significant period of time and caused physical damage to the property by its molecular binding to the Grill’s inanimate surfaces, producing a continual contamination of the property.

Both sides have agreed to a bench trial in which a judge will decide whether or not Oceana Grill is entitled to insurance coverage from Lloyd’s of London for the restaurant’s business interruption losses during the ongoing Covid pandemic.

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