Business-interruption suit involving Aspen restaurant awaits answer from state’s high court
An Aspen restaurant’s federal lawsuit against its insurance carrier over financial losses brought on by the pandemic faces a pause as parties on both sides await the state supreme court’s opinion in another case with similar allegations.
L’Hostaria Ristorante, under its corporate name Sagome Inc., sued Cincinnati Insurance Co. in December for coverage related to business interruptions that took place from March 16, 2020, through April 26, 2020, due to public health orders that shut down the downtown Aspen restaurant, as well as subsequent orders that limited its food service to curbside pickup.
Cincinnati Insurance denied the restaurant’s claims because its policy covered direct physical damage to its property, but not financial losses triggered by health orders, according to court filings. The insurance carrier has a motion to dismiss the case on those grounds, as well. But before the court decides on that motion, there’s one question that needs answering, argued attorneys from the Denver firm Levin Sitcoff PC in a written pleading to the court Sept. 3 seeking a stay in the proceedings. Levin Sitcoff represents L’Hostaria in its litigation.
The question — “Does the presence of COVID-19 at an insured location constitute physical loss or damage for purposes of a property insurance policy?” — is pending before the U.S. District Court in Colorado in another suit from Levin Sitcoff. That suit also challenges an insurance carrier’s coverage when it comes to pandemic-triggered business-interruption losses, and the question being posed by Levin Sitcoff is central to the firm’s motion to have the question certified as a matter of state law. That would require the Colorado Supreme Court to issue an answer simply to that question — not make any rulings on the lawsuit itself.
“Whether the presence of COVID-19 constitutes physical loss or damage for purposes of Colorado insurance policies is a vitally important question of state law. The Colorado Supreme Court deserves the opportunity to answer it,” said Levin Sitcoff’s motion on behalf of Monarch Casino & Resort Inc., a Nevada company that owns and runs casinos in Reno and Black Hawk, Colorado. That suit also claims wrongful denial of business-interruption claims.
The motion noted most “property insurance policies contain a threshold requirement that the insured sustain ‘physical loss or damage’ before coverage is triggered. And with near uniformity, insurers in Colorado and elsewhere have denied claims for COVID-related losses on the ground that the presence of the virus doesn’t cause physical loss or damage to insured property. The result is a flood of litigation rising in federal and state courts, sometimes with inconsistent outcomes.”
Until that answer is provided, Levin Sitcoff argued that the L’Hostaria case should be paused. Cincinnati Insurance Co. also agreed to the stay. The motion is pending.
In other business interruption cases, insurance companies have successfully argued physical damage to the restaurants — caused by natural disasters, for instance — did not occur with COVID-19, and that’s why their claims were denied. The majority of cases like L’Hostaria’s have been thrown out by the courts.
“When the COVID-19 virus and attendant restrictions burst on the scene during Spring 2020, contested coverage claims were expected,” wrote attorneys Erik Knutsen and Jeff Stempel on Penn Law’s Covid Coverage Litigation Tracker website. “What has surprised most everyone, however, is the amazing insurer success to date in defeating those claims via motion. Insurers have prevailed more than 90 percent of the time in federal court.”
The authors noted that insurers have successfully had suits dismissed two-thirds of the time in state court.
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This New York-founded cafe has expanded to Aspen with a “democratic luxury“ approach to design and caffeine.