In November, we reported that the Louisiana Supreme Court had 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. The case centered on business interruption insurance coverage for the COVID-19 pandemic. As with any good race to the finish line, this nail-biter had the contestants flipping sides again—with the insurer coming out ahead by a nose. The Louisiana Supreme Court ruled that the business’s insurance policy coverage for “business interruption” did not cover losses due to COVID-19.

Below is a recap of how this race began and how it ended.

The Trial and Appellate Courts

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. The trial court held a bench trial, finding in favor of the insurer.

Plaintiff appealed the trial court’s ruling to the Louisiana Fourth Circuit Court of Appeal. The Appellate Court found the policy language regarding “direct physical loss of or . . . to the property” ambiguous, therefore finding the contract should be interpreted in favor of the appellant Plaintiff. With that ambiguity running in favor of Plaintiff, the Appellate Court reversed the denial of the Petition for Declaratory Judgment, finding in favor of the Plaintiff and ruling that the COVID-19 virus was such a “direct physical loss” as provided for in the insurance contract.

The Louisiana Supreme Court Finds No Coverage for COVID-19 Losses Under the Policy

On March 17, 2023, the Louisiana Supreme Court handed down its opinion reversing the ruling of the Louisiana Fourth Circuit.[2] The Court provided portions of the policy language, which included the following provision:

We will pay for the actual loss of Business Income you sustain due to the necessary “suspension” of your “operations” during the “period of restoration.” The “suspension” must be caused by direct physical loss of or damage to property at [the] premises….

The Court began its discussion by noting that the insurer argued losses caused by the COVID-19 virus were not covered because it did not cause “Tangible alteration to the property.” On the other hand, the Court acknowledged the insured’s position that contamination from the virus caused significant income loss. The insured had provided expert testimony regarding the “overwhelming” probability that infected persons had entered the business and the means of virus spread/contamination. The insurer provided expert testimony regarding contamination mitigation.

The Court noted that the term “direct physical loss of or damage to property” indeed was not defined in the policy. As with the Fourth Circuit panel, the Supreme Court fell back to precepts of contractual interpretation. The Court found that “the plain, ordinary and generally prevailing meaning of ‘direct physical loss of or damage to property’ requires the insured’s property sustain a physical, meaning tangible or corporeal, loss of damage.” It further found the loss/damage must be “direct, not indirect.” Under these meanings, the Court found that the COVID-19 virus did not cause the required damage to the insured’s property.

Regarding the expert testimony, the Court noted that the virus did not damage the property and that the effectiveness of the insured’s cleaning the property demonstrated the virus did not “damage” the property. The Court further noted that the term “direct physical loss” was not as broad as the insured suggested. Indeed, the broad interpretation proposed by the insured negated the modifier “physical” before “loss.” The insurance contract meant something more than simply any loss. The Court noted that the Appellate Court erred by focusing so much on “loss of use” rather than the specific term “direct physical loss.”

The Court also looked to other definitions of the contract, finding that this direct physical loss contemplated the need for the property to be “repaired, rebuilt or replaced.” This loss from the COVID-19 virus required none of this. The Court used this reasoning in distinguishing from other cases of contamination, such as cases of lead contamination a home and requiring structural repairs.[3]

The Court further found that other state supreme courts had come to similar conclusions within the past year. Like those Courts, the Louisiana Supreme Court found no coverage under the insured’s policy for business losses caused by the COVID-19 virus.

The Dissent

There was one written dissent. Justice Hughes found that the insured indeed suffered a physical loss of its property due to “physical contamination of the property by the Covid virus, a physical thing.” Justice Hughes likened this contamination to smoke entering form a nearby fire which cause the business to close until the odor could be removed and the business cleaned.

While we are sure the insured would agree with Justice Hughes’s analogy, it was not enough to sway the majority of the bench.

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

[2] Cajun Conti LLC et al. v. Certain Underwriters at Lloyd’s et al., 2022-C-01349 (LA 03/17/2023).

[3] Citing to Widder v. Louisiana Citizens Prop. Ins. Corp., 11-0196 (La. App. 4 Cir. 08/10/2011), 82 So.3d 294, 296, writ denied, 11-2336 (La. 12/02/11), 76 So.3d 1179.