A restaurant in the heart of the New Orleans tourism district filed a lawsuit on Monday asking a state
judge to declare 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 yet clear on Monday 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, Louisiana.
“I’ve talked to restaurant owners from here to New York City and they all being
told the exact same thing by their agents.”

A Dallas attorney who represents insurance carriers said the lawsuit 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 Cajon 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.

Houghtaling argues in a petition filed with the Orleans Parish Civil District Court that any damages
caused by a shutdown are a “real physical loss” that is covered by Oceana’s
business interruption policy with Lloyd’s of London syndicates. The policy does
not have an exclusion for viruses or pandemics, the suit says.

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. “It is clear that contamination
of the insured premises by the coronavirus would be a direct physical loss
needing remediation to clean the sources of the establishment,” the petition
says.

Lawyers do no 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
pro-active to avoid future damage or injury, and the breadth of those orders.”