Court’s Dismissal of Legal Sea Foods’ COVID-19 Property Insurance Claims Spells Stormy Seas for Insureds

On Friday, March 5, 2021, Judge Nathaniel Gorton of the United States District Court for the District of Massachusetts issued a much awaited decision dismissing Plaintiff, Legal Sea Foods, LLC’s (“Legal”), Complaint against Strathmore Insurance Company (“Strathmore”). In its Complaint, Legal sought a determination that Strathmore was liable for lost income and expenses incurred as a result of the novel COVID-19 pandemic and several related orders issued by state and local governments prohibiting on-premises dining. More specifically, Legal alleged that Strathmore was responsible for these losses either under the Business Income (and Extra Expense) or Civil Authority coverages included within a commercial property insurance policy issued by Strathmore to Legal on March 1, 2020- just days prior to implementation of statewide shutdowns.

The dispute ultimately turned on whether the presence of the virus at certain restaurant locations constituted, “direct physical loss of or damage to,” a covered property as defined within the policy. Following the decisions of several other courts, Judge Gorton held that the, “COVID-19 virus does not impact the structural integrity of property in the manner contemplated by the Policy and thus cannot constitute, “direct physical loss of or damage to” property. The Court added, “[a] virus is incapable of damaging physical structures because “the virus harms human beings, not property.”” Further, the Court ruled that coverage was not available under the Civil Authority provision of the policy as Legal failed, “to identify any specific order that expressly and completely prohibited access to any of,” its restaurant locations as opposed to simply limiting the public’s access thereto.

The decision, which will come as a relief to those within the property and casualty community, and the dismay of many within the retail and service industries, highlights the need for careful drafting of policy terms and review of these terms during the negotiation of commercial liability policies.

A copy of the Court’s decision, which includes a useful digest of similar Trial Court decisions issued throughout the Country, may be found at: Legal Sea Foods, LLC, v. Strathmore Ins. Co., No. CV 20-10850-NMG, 2021 WL 858378 (D. Mass. Mar. 5, 2021).