The 5th Circuit Court of Appeals ruled Monday against a New Orleans restaurant’s claim for business interruption losses after the restaurant could not prove direct and sole cause by an accidental contamination of food during the early days of the COVID-19 pandemic.
Galatoire’s Restaurant on Bourbon Street sued U.S. Specialty Insurance Company (USSIC) for refusing to cover its revenue losses of $3,445,000 incurred between March to September 2020. Galatoire’s had a policy covering accidental contamination of an insured product, and the policy did not contain a virus or pandemic exclusion.
Galatoire’s claims that it had sustained a loss due to accidental contamination of an insured product by a sick waiter who worked the weekend of March 13-15 and tested positive March 17. On March 16, the Governor of Louisiana announced that effective March 17, all restaurants would be prohibited from allowing any on premises consumption of food or beverages. On the same evening as the governor’s order, Galatoire’s management fired all 148 non-management employees.
A district court held that Galatoire’s must submit evidence of actual contamination of an insured product, in this case food products, to trigger coverage the business interruption losses policy.
Galatoire’s contends that it provided evidence of contamination via expert testimony and that a requirement of scientific testing or proof of sickness would render the contract illusory.
On the first point, the 5th Circuit said that Galatoire’s expert witness, Dr. Cameron, could could the infected waiter likely unknowingly expelled infectious virus in tiny aerosolized droplets each time he spoke to patrons. Because the policy mandates the insured to submit proof of actual contamination, Galatoire’s has not provided necessary evidence.
Galatoire’s second argument takes issue with the burden to show actual contamination. The business claims that if proof of actual contamination is required, then contamination of this kind will never qualify as an insured event because it would need to proven by scientific testing or by evidence of sick customers.
The 5th Circuit shot down this argument, stating that it is not the insurer’s burden to show Galatoire’s how to submit evidence of actual contamination.
“Appellant’s frustration over its inability to proffer evidence of actual contamination suggests not that the policy is illusory, but that the contamination alleged here is not an insured event,” the court wrote.
Pointing to the governor’s orders and Galatoire’s decision to fire all its non-management staff, the 5th Circuit concluded that the restaurant had not shown that the insured event, if it occurred, was the direct or sole cause of its business interruption losses.
Galatoire’s lawsuit differs from another Louisiana business-interruption case in which the owner of a New Orleans persuaded Louisiana 4th Circuit Court of Appeals that SARS-CoV-2 had caused a covered direct physical loss.
The Louisiana appeals court narrowly ruled that Cajun Conti is owed coverage because its policy with Lloyd’s of London was ambiguous, so it must be interpreted in favor of the policyholder.
The Louisiana Supreme Court has agreed to hear Lloyd’s appeal of the ruling.
Photo: Galatoire’s Restaurant in New Orleans, Louisiana (Credit: Galatoire’s)
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