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  • Writer's pictureMichael Ferrari

Pending Appeal of First Department's Decision on Business Losses Resulting From COVID-19

Recently The New York Law Journal this week (April 13, 2023) reported on a pending appeal of the First Department's decision in Consolidated Restaurant Operations v. Westport Insurance. The article discusses the efforts of Cohen Ziffer Frenchman & McKenna on behalf of its client, Consolidated Restaurant Operations ("CRO") which operates and franchises several restaurants throughout the United States.

The appeal focuses on CRO's argument that its insurance contract with Westport Insurance (the "Insurer"), obligates the Insurer to cover its business losses resulting from the infiltration of its properties by the COVID-19 virus. The Brief argues that the business losses which CRO suffered were the result of a "physical" harm i.e. the permeation of the virus through its insured properties, which losses are therefore covered under its policy's all-risk property interruption insurance obligations. The brief argues that CRO suffered

"direct physical loss or damage" under its property and business interruption insurance policy (the "Policy") when SARS- CoV-2, the virus that causes COVID-19 – a lethal, physical substance . . . permeated and attached to its insured restaurants, thereby tangibly altering the air and surfaces therein, and severely impairing their functionality. CRO's Brief for Appellant January 17, 2023

This matter, which attracted multiple Amici Curiae or "friends" of the court who submitted briefs including Chef's Warehouse Inc., New York State Trial Lawyers Association, New York State Restaurant Association and New York City Hospitality Alliance in support of Appellant CRO and American Property Casualty Association in support of Respondent Insurer at the intermediate appellate level, turns on whether the First Department was correct that "to survive dismissal [the] complaint must plausibly allege that the virus itself inflicted actual physical loss of or damage to [the] property" (Kim-Chee LLC v Philadelphia Indem. Ins. Co., 21-1082-CV, 2022 U.S. App. LEXIS 2655, 2022 WL 258569, at *1 [2d Cir Jan. 28, 2022]). Consol. Rest. Operations, Inc. v. Westport Ins. Corp., 167 N.Y.S.3d 15, 21 (App. Div. 1st Dept.).

The restaurant group faces an uphill battle as "more than 300 state and more than 860 federal cases, including more than 200 appellate courts, had 'come to the inescapable determination that economic loss from efforts to protect human health from COVID-19 is not 'direct physical loss or damage' to insured property under property insurance contracts'" according to the Insurer. (Law Journal April 13, 2023).

As with any insurance policy and more broadly any contract of any type, it depends on the language on the page. If you are a restaurant or business that has been refused on an insurance claim, you may want to keep an eye on this matter as our firm and the many friends of the court will be doing. Please contact our firm if you wish to discuss the facts of your case and explore whether the law supports your claim.


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