As Clock Strikes Midnight, Restaurants and Bars Closed by Pandemic Should Review Insurance Policies

As of 12:01 a.m. today, all “[b]ars, restaurants, nightclubs, casinos, and taverns” in Allegheny County, Pennsylvania, are closed “for in-person operation.” This one-week shutdown, precipitated by the spike in cases of the novel coronavirus (“COVID-19”) in Allegheny County, almost certainly will cause further economic damage to the restaurant and bar industry. Similar virus-related closures (or other mandatory limitations on operations) also have been ordered across the country. Insurance may be available to cover certain of the losses caused by the virus and the closures (or other limitations). As such, now is the time for all bars, restaurants, nightclubs, casinos, and taverns to review their insurance policies and to provide their insurers notice of their losses.

On July 2, 2020, the Allegheny County Health Department (“ACHD”) Director ordered “that effective on July 3, 2020, at 12:01 AM, and lasting until July 10, 2020, at 12:00 AM … [b]ars, restaurants, nightclubs, casinos, and taverns shall close for in-person operation. Take-out and delivery service are still permitted.” Earlier in the week, the ACHD Director had issued another order which prohibited on-site alcohol consumption in restaurants and bars across Allegheny County.

Allegheny County is not alone in implementing such drastic measures. Other states and/or municipalities across the country also have recently closed bars and/or restaurants due to an increase in COVID-19 cases. For example, according to NBC News, recently, “[t]he governors of Florida and Texas closed down bars … to slow down the spread of the coronavirus that has been rampaging at record levels through their states.” And, in California, “Gov. Gavin Newsom [recently] said [that in certain counties at least] bars must close and indoor operations will need to stop in certain business sectors including restaurants, wineries, movie theaters, zoos, museums and card rooms, in order to mitigate the spread of the coronavirus ahead of Fourth of July weekend. The order is effective immediately and [Gov.] Newsom expects it to be in place for at least three weeks.”

These orders are only the latest blow to the Allegheny County and national restaurant and bar industry, which has already been hit hard by the current pandemic. For example, in March 2020, Pennsylvania Gov. Tom Wolf ordered Pennsylvania “restaurants and bars to close their dine-in facilities.” Only recently were many of them permitted to re-open. But, significant damage was already done.

Nationally, “[t]he restaurant industry as a whole likely lost more than $120 billion in sales during March, April, and May, according to a recent survey by [t]he National Restaurant Association.” According to a recent report citing that association, this industry is projected “to lose $240 billion by the end of the year.”

Faced with another round of closures and still mounting losses, restaurant and bar owners would be well advised to look at their property insurance policies in particular and to provide their insurers notice of their losses promptly. Most property policies provide coverage for “direct physical loss of or damage to Covered Property” and business interruption losses caused as a result. Additionally, many such policies provide “Civil Authority” coverage, which, for example, often provides, in relevant part:

When a Covered Cause of Loss causes damage to property other than property at the described premises, we will pay for the actual loss or Business Income you sustain and the actual Extra Expense you incur caused by action of civil authority that prohibits access to the described premises ….

While many insurance companies are taking the clearly self-serving position that the novel coronavirus has not caused any physical loss or property damage, viral contamination of property may in fact constitute direct physical damage. This virus, which reportedly can be transmitted through surface contact, can contaminate property and prevent the use thereof.

As such, no policyholder – whether in the restaurant or bar industry or otherwise – should just assume that coverage is not available for virus-related losses. To the contrary, all policyholders should review their insurance policies, especially their property policies, at this time. It is important to understand what coverages those policies do and do not provide.

Moreover, even if a policyholder believes that its insurer likely will ultimately deny coverage for a COVID-19-related loss, the policyholder likely will still want to provide notice of the loss to its insurer. That way, if subsequent legislation or litigation requires that an insurer cover such virus-related losses, the policyholder will have made sure that its insurer cannot then deny coverage based on a lack of, or even late, notice.

In the meantime, policyholders should make sure to carefully track and document all of their losses so that they can provide that information to their insurance companies if and when required.

Experienced insurance coverage counsel can help restaurateurs, bar-owners, and other policyholders with any or all of these important tasks and with any coverage issues or disputes that arise after providing notice.

If you have any questions regarding this shutdown or its implications as far as insurance coverage, please contact Michael H. Sampson. Michael is a Partner at Leech Tishman and Chair of Leech Tishman’s Insurance Coverage Group. He is also a member of the firm’s Litigation Practice Group and Co-Chair of the Leech Tishman’s Cannabis Group. Michael is based in the Pittsburgh office and can be reached at 412.261.1600 or msampson@leechtishman.com.

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Leech Tishman Fuscaldo & Lampl is a full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in alternative dispute resolution, aviation & aerospace, bankruptcy & creditors’ rights, cannabis, construction, corporate, employee benefits, employment, energy, environmental, estates & trusts, family law, government relations, immigration, insurance coverage, intellectual property, international legal matters, litigation, real estate, and taxation. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in Chicago, Los Angeles, New York, Sarasota and Wilmington, DE.