Cajun Conti LLC v. Certain Underwriters at Lloyd's, London

Decision Date17 March 2023
Docket Number2022-C-01349
CourtLouisiana Supreme Court

On Writ of Certiorari to the Court of Appeal, Fourth Circuit Parish of Orleans


Plaintiff seeks insurance coverage under an all-risks commercial insurance policy for business income losses during the COVID-19 pandemic. Finding no "direct physical loss of or damage to property" caused by COVID-19, we reverse the appeal court and reinstate the trial court judgment denying coverage.


Oceana Grill is a restaurant in the French Quarter of New Orleans. During normal operations before the COVID-19 pandemic, the restaurant could accommodate 500 guests at any one time. On March 16, 2020, responding to the emerging COVID-19 virus, an emergency proclamation was issued by the mayor of New Orleans prohibiting most public and private social gatherings. Restaurant operations were limited to take-out and delivery services, and Oceana Grill closed to all but those services.

Complying with government-imposed capacity restrictions and social distancing requirements, the restaurant reopened at 25% capacity on May 16, 2020. Although restrictions loosened to 50%, then 75% by October, 2020, due to social distancing guidelines Oceana Grill remained at 60% or less capacity throughout the pandemic. Expenses were also incurred to sanitize the space. Due to the capacity limitations and incidental expenses, the restaurant could not generate pre-COVID-19 income.

The owners of the restaurant maintained an all-risks commercial insurance policy with loss of business income coverage through Certain Underwriters at Lloyd's, London. They sought a declaratory judgment that the "policy provides business income coverage from the contamination of the insured premises by COVID-19."[1]

Lloyd's responded by seeking a summary judgment arguing there is no coverage under the policy because COVID-19 does not cause "direct physical loss of or damage to property." The trial court denied summary judgment, and the matter proceeded to trial. Following a three-day bench trial, the trial court denied declaratory relief without providing reasons.

The court of appeal reversed. Cajun Conti LLC v. Certain Underwriters at Lloyd's, London, 21-0343 (La.App. 4 Cir. 6/15/22), __ So.3d __, 2022 WL 2154863. The court found the policy ambiguous, reasoning that "direct physical loss" could mean loss of use of the property. Because the COVID-19 virus prevented the full use of the property due to capacity limitations, coverage was triggered. Two dissenting judges found no ambiguity in the policy language and no coverage. We granted certiorari to interpret "direct physical loss of or damage to property" in the context of business income losses due to the COVID-19 pandemic.


Lloyd's argues the policy covers only risks causing tangible alteration to property. They contend that while the COVID-19 virus may be tangible, because it does not cause damage that can be seen or touched, it does not directly physically alter property.

Oceana claims significant income losses due to contamination by, and the continued presence of, COVID-19 at its insured location. It argues that contamination by the virus created a dangerous situation that eliminated the use of 50% to 100% of the insured property. Oceana contends either COVID-19 contamination caused direct physical loss of or damage to property or the policy is ambiguous, and either event results in coverage. See La. Civ. Code art. 2056.

The policy provides, in pertinent part:
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….
"Operations" are defined as:
a. Your business activities occurring at the described premises…
"Period of restoration" means the period of time that:
a. Begins 72 hours after the time of direct physical loss or damage caused by or resulting from any Covered Cause of Loss at the described premises; and
b. Ends on the earlier of:
(1) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or
(2) The date when business is resumed at a new permanent location.
"Suspension" means:
a. The slowdown or cessation of your business activities…

Thus to recover lost business income, the insured must experience a suspension of operations "caused by direct physical loss of or damage to property." The suspension may be a "slowdown" or a "cessation" of business activities, and the claimant may recover lost business income during the "period of restoration," but all are conditioned upon "direct physical loss of or damage to property." To determine coverage, we are tasked with interpreting "direct physical loss of or damage to property."

Oceana relies on a theory of COVID-19 contamination to establish coverage. To establish contamination, Dr. Lemuel Moye was plaintiff's expert in medicine, biostatistics, and epidemiology, and calculated the scientific probability that at least one infected person entered the restaurant per day. He testified that probability was "overwhelming." He further testified that an infected individual spreads the virus by breathing, and virus particles stay airborne before finally settling onto surfaces where they remain virulent. He said the virus is very difficult to clean completely, especially if infected people continue to enter the environment. Finally, Dr. Moye opined that "when the virus lands on property it transforms that property from noninfectious, safe, to infectious. Nobody wants to touch or wants to be near property that is infectious. So that is damage."

Dr. Allison Stock was defendant's expert in epidemiology. She opined that proper mitigation strategies and adherence to CDC guidelines prevent transmission of the virus, especially on surfaces. She believed COVID-19 could be eliminated through proper cleaning, thus allowing the restaurant to operate safely during the pandemic.

Dr. Brian Flinn was defendant's expert in material science. He testified it is possible the virus can be cleaned with a disinfectant, like bleach, and does not cause physical damage to inanimate surfaces.

"Direct physical loss of or damage to property" is neither defined in the policy nor has it acquired a technical meaning. As a contract between the parties, an insurance policy should be construed using the general rules of contract interpretation set forth in the Louisiana Civil Code. Cadwallader v. Allstate Ins. Co., 02-1637 (La. 6/27/03), 848 So.2d 577, 580. The judiciary's role in interpreting insurance contracts is to ascertain the common intent of the parties. Id. See La. Civ. Code art. 2045. Words and phrases used in an insurance policy are to be construed using their plain, ordinary and generally prevailing meaning, unless the words have acquired a technical meaning. Id. See La. Civ. Code art. 2047.

We find 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 or damage. The loss or damage must also be direct, not indirect. Applying these meanings to the facts and arguments presented, COVID-19 did not cause direct physical loss of or damage to Oceana's property.

Dr. Moye's testimony that the virus infects and damages property actually conflicts with the fact Oceana cleaned the property with a disinfectant and continued its use. That fact supports Lloyd's experts, who opined the virus does not "damage" surfaces and can be cleaned with a disinfectant. While the restaurant did increase its cleaning practices during the pandemic, the property remained physically intact and functional, needing only to be sanitized.

Oceana also claims "direct physical loss" is broader than "damage," and encompasses the inability to use covered property. The argument derives from Oceana's inability to fully use its dining room during the pandemic. However, loss of use alone is not "physical loss." Otherwise, the modifier "physical" before "loss" would be superfluous. While government restrictions on dining capacity and public health guidance regarding social distancing reduced Oceana's in-person dining capacity and restricted its use, again, Oceana's property was not physically lost in any tangible or corporeal sense. Even when in-person dining was prohibited, Oceana's kitchen continued to provide take-out and delivery service, and the restaurant's physical structure was neither lost nor changed. The appellate court erred by focusing on the loss of use rather than on whether a direct physical loss occurred. We find Oceana did not suffer a direct physical loss.

We also find support for our interpretation in the definition of "period of restoration." The insured can recover lost business income during a "period of restoration." That period begins 72 hours after a "direct physical loss of or damage to property." The restoration period ends when the property should be "repaired, rebuilt or replaced with reasonable speed and similar quality" or "business is resumed at a new permanent location."

No evidence suggests the words "repaired, rebuilt or replaced" have a technical meaning. See Civil Code art. 2047. Giving them their ordinary and generally prevailing meaning, Oceana never had to repair, rebuild, or replace anything. Social distancing and increased cleaning...

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