LA Supreme Court Rules COVID-19 Business Income Losses Not Covered Under Commercial Property Policies

The Louisiana Supreme Court issued a decision in Cajun Conti L.L.C. v. Certain Underwriters at Lloyd’s, London on March 17 and concluded that COVID-19 business income losses are not covered under commercial property insurance policies, reversing the Louisiana Fourth Circuit’s opinion on the issue. Justice William J. Crain wrote for the five-justice majority.

The court explained that the “plain, ordinary and generally prevailing meaning” of the phrase “direct physical loss of or damage to property” as used in a commercial property insurance policy “requires the insured’s property sustain a physical, meaning tangible or corporeal, loss or damage[,]” and that “COVID-19 did not cause direct physical loss of or damage to [the plaintiff-insured’s restaurant] property.” 

On the issue of physical damage, the court agreed with the defendants’ position that “the virus does not ‘damage’ surfaces and can be cleaned with a disinfectant.” On the issue of physical loss, the majority reasoned that “[w]hile government restrictions on dining capacity and public health guidance regarding social distancing reduced [the plaintiff-insured’s] in-person dining capacity and restricted its use,” the plaintiff-insured’s “property was not physically lost in any tangible or corporeal sense.” The majority elaborated that the “loss of use [of property] alone is not ‘physical loss.’”

Nearly every state supreme court that has addressed this issue has concluded, like the Louisiana Supreme Court did, that commercial property insurance policies do not respond to pandemic-related business losses. Even so, most state high courts have yet to address the issue, and we will continue to monitor the national wave of property insurance litigation as it develops. Please contact Virginia Dodd, Allen Miller, Kevin Welsh or any member of Phelps’ Insurance or Litigation teams if you have questions or need advice or guidance.