A Louisiana state appeals court overturned a lower court Wednesday in a divided opinion and held that a New Orleans restaurant is entitled to COVID-19-related business interruption coverage because of ambiguous policy language. 

In February 2021, following a bench trial, which was the first trial to be held on the issue, a Louisiana state judge ruled in favor of Lloyd’s of London underwriters in a case filed by the owner and operator of the Oceana Grill in New Orleans’ French Quarter, in Cajun Conti LLC et. al. v. Certain Underwriters at Lloyds, London et al.  

It is the second state appeals court ruling in as many days to rule for policyholders, following dozens of federal appeals court rulings that held in insurers’ favor, including several by the New Orleans-based 5th U.S. Circuit Court of Appeals. 

On Tuesday, a New York appeals court upheld a lower court decision and ruled that the New York Botanical Garden is entitled to COVID-19-related business interruption coverage from an Allied World Assurance Co. Holdings Ltd. unit.  

The majority ruling in the 5-2 decision said the policy “covers the loss of business income due to necessary ‘suspension’ of operations caused by ‘direct physical loss for damage to the property.’” 

“‘Suspension’ is defined in the policy as the ‘slowdown or cessation of your business activities.’ Therefore, under the terms of the contract, the complete cessation of operations and uninhabitable property are not prerequisites to payment for business losses suffered due to the suspension of operations caused by ‘direct physical loss or damage to the property,’” the ruling said. 

“Suspension includes the slowdown of business activities, which occurred here, as well as the complete cessation of business operations which occurs when a property is entirely uninhabitable,” the ruling said. 

“The policy under review in this case is an ‘all-risk’ policy, ‘where all risks are covered unless clearly and specifically excluded,’” the majority opinion states. 

“The words of the policy foresee a situation in which business losses can be covered by less than the complete destruction of the property or less than the complete loss of the property’s utility,” it said. 

“The presence of this ambiguity and the existence of two equally reasonable interpretations as to what constitutes a ‘direct physical loss or damage to’ the insured property requires the Court to liberally construe the provision in favor of coverage for the appellants and against the appellee, who drafted the vague provision,” the opinion said, in reversing the trial court’s decision, and ruling in the restaurant’s favor. 

The dissenting opinion states, “While the majority argues that the language is open to more than one reasonable meaning and is ambiguous, the jurisprudence and plain language of the Policy do not support that contention.”

It states, “The contractual language in question here is not defined in the Policy, but has been interpreted by numerous courts applying Louisiana law, in the context of business interruption coverage due to COVID-19, without a finding of ambiguity.”

Attorneys in the case did not respond to requests for comment.

Peter A. Halprin, a partner with Pasich LLP in New York, who was not involved in the case, said in a statement, the appeals court “applied a bedrock principle of insurance policy interpretation, holding that the phrase ‘direct physical loss of or damage to’ was ambiguous and should thus be construed against the drafter and in favor of coverage.”

“This ruling will no doubt influence the many other appellate courts with pandemic insurance issues before them,” he said.

Marshall Gilinsky, an insurance recovery attorney and shareholder at Anderson Kill P.C. in New York, who is not involved in the case, said in a statement that “while federal courts of appeals have ruled that the virus does not constitute physical loss or damage, case law from many state courts suggests otherwise, and state courts have been more receptive to businesses’ COVID-19 claims.”