Since the start of the COVID-19 pandemic and lockdowns, there has been a brewing and boiling conflict between business owners and their insurers. Did the pandemic and the attendant lockdowns cause a covered interruption of business activities? In Louisiana, we may soon find out. On November 22, 2022, the Louisiana Supreme Court granted writ of certiorari[1] to review the Louisiana Fourth Circuit Court of Appeal’s ruling in Cajun Conti LLC v. Certain Underwriters at Lloyd’s, 2021-CA-0343 (La. App. 4 Cir. 06/15/22), reh’g denied, a case about business interruption insurance vis-à-vis the COVID pandemic.

In the trial court

To kick this matter off, Plaintiff, operating a restaurant in New Orleans, filed a Petition for Declaratory Judgment seeking a declaration that their all-risks insurance policy provided coverage for any loss or damage caused by direct physical loss of or damage to their premises due to “continuous contamination by COVID-19.” Defendants, on the other hand, claimed the COVID-19 virus did not constitute a “direct physical loss or damage,” as required by the insurance policy, and sought summary judgment on that issue. The trial court first denied the Motion for Summary Judgment, then held a bench trial—resulting in denial of Plaintiff’s Petition.

On Appeal – the main ruling

Plaintiff appealed the trial court’s ruling to the Louisiana Fourth Circuit Court of Appeal. Upon reviewing the policy, the five-judge panel split 3-2 on reviewing the contract. Due to this ambiguity, the Court stated the contract should be interpreted in favor of the appellant Plaintiff. Therefore, the trial court’s denial of the Petition for Declaratory Judgment was reversed.

The Court noted that matters of contractual interpretation are subject to the Appellate Court’s de novo review—meaning the Court had to give little to no weight to the ruling at trial. Factual findings, however, were subject to a higher standard of “manifest error” or “clearly wrong.”

The Court thereafter provided a rundown of contractual interpretation precepts: words must be given their generally prevailing meaning, technical terms must be given their technical meanings, etc.  If different meanings are possible, a contract must be interpreted with a meaning that renders it effective rather than a meaning that makes it ineffective—meaning an insurance contract must be interpreted in favor of coverage rather than denying coverage.[2] Further, as the Court noted, if an insurance policy is susceptible of two or more reasonable interpretations, then it is considered ambiguous and must be liberally interpreted in favor of coverage.[3] The Court also noted that an all-risk policy will cover all risks “unless clearly and specifically excluded.”[4]

The Court looked to the all-risk policy, which covered loss of business income sustained due to necessary suspension of operations during the period of restoration—with the suspension needing to come from a direct physical loss of or damage to the property. Utilizing definitions for “direct” and “suspension” derived in other insurance-based cases, the Court found that the policy indeed provided coverage. The appellee Defendants noted that some jurisdictions had found the term “physical” meant a tangible or corporeal loss of property—rather than a less-definite loss of use. The Court, however, noted that other jurisdictions had come to the exact opposite conclusion as well.

In the end, after parsing through multiple interpretations of multiple words or previsions of the applicable portion of the policy, the Court stated:

“Given the existence of multiple plausible interpretations of these two provisions, the policy is ambiguous as to what constitutes a covered “direct physical loss of or . . . to the property” [*20]  and coverage should, therefore, be construed in favor of the appellants.”

Given the ambiguity, the Court also resorted to parole evidence—i.e., evidence outside the four corners of the contract. The Court found that multiple policies with viral exclusions were available on the market, yet this policy did not include a specific viral exclusion. Furthermore, the Plaintiff’s general manager testified, stating that a policy with a virus exclusion would never have been purchased since the restaurant sold raw oysters. That testimony, the Court found, strengthened the equitable interpretation in favor of appellant Plaintiff.

The Dissent

Two Judges[5] on the Fourth Circuit dissented from this ruling and would have upheld the trial court’s findings in favor of Defendant insurer. These judges would have ruled in line with similar federal court cases which did not find coverage for restaurants whose businesses were hampered by the COVID pandemic, even though applying Louisiana law. These judges found the term “physical loss of or damage to” was not ambiguous[6]  and that the suspension of operations must be due to some “tangible alteration” to the property requiring repair, rebuilding, or replacement.

The dissent also noted that the restaurant was cleaned; that no testing for coronavirus had been undertaken inside the restaurant; and that the restaurant lost no physical equipment. The dissent also noted Defendant’s expert testimony at trial, which noted there had been no known infections by surface-to-human transfer. Furthermore, the restaurant engaged in curbside pickups and re-opened with safety precautions and modifications—it was not totally unusable.

As such, the dissent did not find the trial court’s ruling in error.

What to expect

The Court is not required to accept a writ application, but at the same time might want to provide some finality to COVID-19 business interruption coverage disputes—at least for policies with language similar to this one.

Right now, the results are anyone’s guess. Per the Court’s order granting the writ of certiorari, the applicant (Defendant insurer) must file its brief by December 19, 2022, with respondent Plaintiff filing its brief in opposition by January 6, 2023—the official start of Carnival Season.

We’ll be following this case and will provide future updates on the results.

[1] 2022-01349 (LA 11/22/22).

[2] Citing  Davis v. Nola Home Construction, L.L.C., 16-1274, p. 14 (La. App. 4 Cir. 6/14/17), 222 So. 3d 833, 844 (citing Supreme Services and Specialty Co., Inc. v. Sonny Greer, Inc., 06-1827, p. 6 (La. 5/22/07), 958 So. 2d 634, 638)

[3] Citing Supreme Services, 06-1827, n. 2, supra, 958 So. 2d at 638 (citing Reynolds v. Select Properties, Ltd., 93-1480 (La. 4/11/94), 634 So. 2d 1180, 1183; Newby v. Jefferson Parish Sch. Bd., 99-0098 (La. App. 5 Cir. 6/1/99), 738 So. 2d 93)

[4] Citing Widder v. La. Citizens Prop. Ins. Corp., 11-0196, p. 4 (La. App. 4 Cir. 8/10/11), 82 So. 3d 294, 296, writ denied, 11-2336 (La. 12/02/11), 76 So. 3d 1179.

[5] Judge Belsome authored the dissent, joined by Judge Pro Tempore Lynn Luker.

[6] Citing Yount v. Lafayette Ins. Co., 2008-0380 (La.App. 4 Cir. 1/28/09), 4 So.3d 162.