By Daphne Zhang
Law360 (May 27, 2020, 5:26 PM EDT) — A Dallas restaurant group has sued Cincinnati Insurance Co., asking a federal judge to rule that its business interruption policy should cover the more than $1 million in damages it experienced from government-mandated shutdowns due to the COVID-19 pandemic.
Vandelay Hospitality Group LP first filed the complaint in Texas state court in late April before Cincinnati moved it to a Texas federal court on Tuesday. The restaurant group said its “all risk” policy from Cincinnati should cover its losses because the policy does not contain any exclusions regarding business or property loss from a virus or pandemic, according to the complaint.
“Had Cincinnati wanted to exclude pandemic-related losses under the policy, it easily could have attempted to do so on the front-end with an express exclusion,” the group said in the complaint.
Vandelay claimed it received a letter from Cincinnati on March 23 stating that COVID-19-related damages are not direct physical losses and the pandemic is not covered under the policy.
“Although Cincinnati had a duty to conduct an investigation into the claim, it chose instead to forego the investigation, opting, instead, to keep its insured in limbo with what appears to be a new-form reservation of rights letter,” Shauna Izadi and Jason Friedman, attorneys representing Vandelay, said in an emailed statement Wednesday.
The restaurant group said the carrier made an “erroneous assertion” and the pandemic does cause direct physical loss. Vandelay cited a Dallas County order which stated that the coronavirus is “physically causing property damage due to its proclivity to attach to surfaces for prolonged periods of time,” according to the suit. The group said its three Dallas restaurants have been covered under an “all risk” commercial policy from Cincinnati for a one-year term since June 2019.
On March 16, Dallas County issued orders to prohibit dining in at restaurants by only allowing delivery and take out. Vandelay submitted a notice of claim to Cincinnati on March 17, the day it announced its closing of all restaurants in response to the shutdown, according to the suit.
The government closure orders caused “catastrophic business losses” for its restaurants, and Vandelay “reasonably believed and expected” that the policy would pay for revenue losses due to civil authority orders, the restaurant owner said in the complaint.
In the suit, Vandelay alleged that the insurance carrier is trying to put it in a tough position where it will be forced to “accept lowball settlement offers” to avoid lengthy legal proceedings beyond its financial capacity.
The group is also suing the insurer’s registered broker, Baron Cass, through whom it bought the policy last year, according to the complaint.
Vandelay is asserting breach of contract claims and alleging violation of the Texas Insurance Code and the Texas Private Prompt Pay Act. It is asking the court to hold that Cincinnati should reimburse its revenue and property loss from COVID-19 and state-mandated closures, and pay an additional 18% yearly interest of its claimed loss as compensatory damages.
Vandelay’s counsel Izadi and Friedman said they have learned of other lawsuits concerning similar policies but do not anticipate a large nationwide class at this time, though “there is certainly potential for an MDL in the future because Cincinnati is systemically denying insured’s claims, and doing so in bad faith,” they said.
A Cincinnati spokesperson on Wednesday said the company does not comment on pending litigation and “Cincinnati respects the rights of all parties to have their issues heard and resolved in a court of law.”
Cincinnati is represented by Susan Jan Hueber of Litchfield Cavo LLP.
Vandelay is represented by Shauna A. Izadi and Jason H. Friedman of Friedman Feiger LLP