A Court Will not Rewrite a Policy to Provide Coverage for Insured

The Insured Failed to Prove that Covid Infected Employee Contaminated Food Served

Aug 06, 2021

RESTAURANTS SHUT DOWN FOR COVID-19 MUST PROVE CONTAMINATION OF FOOD TO RECOVER ON POLICY

New Orleans Equity, L.L.C. (“New Orleans Equity”) the owner of two restaurants in New Orleans, LA, moved for summary judgment on the issue of coverage for contamination of food. Defendant U.S. Specialty Insurance Company (“USSIC”) responded and also moved for summary judgment. In New Orleans Equity, L.L.C. v. U.S. Specialty Insurance Co., Civil Action No. 20-1935, United States District Court, E.D. Louisiana (August 3, 2021)

BACKGROUND

Were losses allegedly caused by COVID-19 are covered under an insurance policy? New Orleans Equity operates two adjoining restaurants, Galatoire’s Restaurant and Galatoire’s 33 Bar & Steak, on Bourbon Street in New Orleans. One of its employees was infected with COVID-19. Unaware he had contracted the illness, the employee continued to work, in particular on the weekend of March 13-15, 2020. As a result, New Orleans Equity alleged that the employee “accidentally and extensively contaminated food, drinks, condiments, ingestible garnishes, food preparation stations, plates, silverware, glasses, cups, saltshakers, and other receptacles” at both restaurants with COVID-19.

USSIC issued Restaurant Recovery Insurance Policy No. U719-860418 with respect to the two restaurants for a period including March 2020. Under the policy, if there is an “accidental contamination” of an “insured product” (as those terms are defined by the policy), business interruption losses are covered. The policy does not contain a COVID-19 or general virus exclusion.

After New Orleans Equity provided notice of a claim that it had sustained a loss due to this alleged contamination, USSIC hired Johnstone Partners to investigate. Johnstone Partners found that business at the restaurants had begun to slow down as a result of a decline in tourism because of the pandemic. On March 17, 2020, the State of Louisiana and the City of New Orleans ordered all restaurants, including New Orleans Equity’s, to stop on-location dining. Johnstone Partners did not find evidence that any “insured product, ” as defined by the policy, had been contaminated. As a result, USSIC denied coverage.

PENDING MOTION

In its motion for summary judgment, New Orleans Equity argues that USSIC is attempting to rewrite the policy to require the insured to show scientific proof of contamination in the form of test results and evidence of actual illness in order to trigger coverage. Further, New Orleans Equity submits that the policy term “Insured Product” should be defined broadly to include not only food, but also adjacent items such as the plates and tables. USSIC maintains that there is no testing requirement under the policy, but New Orleans Equity still bears the burden of proving that an insured event occurred.

In its motion for summary judgment, USSIC argued that the burden is on New Orleans Equity, as the insured, to prove coverage. By the terms of the policy, USSIC says that New Orleans Equity must prove that (1) an insured event occurred, (2) the event was reported to USSIC as required by the notice of incident provision, and (3) the insured event directly and solely caused a loss.

LAW & ANALYSIS

Insurance Policy Interpretation

By the terms of the contract, the policy is governed by Louisiana law. Under Louisiana law, an insurance policy, like any other contract, is construed according to the general rules of contract interpretation set forth in the Louisiana Civil Code. Clear and unambiguous policy wording that expresses the parties’ intent is enforced as written.

While the insured has the burden of proving that the circumstances constitute a covered claim, the insurer has the burden of proving that any exclusions apply.

According to the terms of the policy, “[t]he Insurer will reimburse the Insured for its Loss … caused by or resulting from any of the following Insured Events first discovered during the Policy Period and reported to the Insurer.” One of the types of insured events, and the one claimed by New Orleans Equity in this case, is “Accidental Contamination.”

Accidental contamination is defined as

[a]ny accidental or unintentional contamination, impairment or mislabeling of an Insured Product(s), which occurs during or as a result of its production, preparation, manufacture, packaging or distribution – provided that the use or consumption of such Insured Product(s) has resulted in or would result in clear, identifiable, internal or external visible physical symptoms of bodily injury, sickness, disease or death of any person(s), within three hundred and sixty five (365) days following such consumption or use.

An insured product is defined as:

all ingestible products for human consumption, or any of their ingredients or components, that have been reported to the Insurer on the application on file with the Insurer for the effective dates of this Policy or by addendum to such application…

New Orleans Equity contended that the restaurants fall under the definition of insured products. It emphasizes the phrase in the definition that discusses products that have “been reported to the Insurer on the application on file with the Insurer.” The USDC concluded that this strained argument ignores the beginning of the definition, however, which limits insured products to “ingestible products for human consumption … that have been reported to the Insurer on the application.” Therefore, because restaurants are not ingestible products, they cannot fit within the policy definition of insured products.

Accidental Contamination

On summary judgment, USSIC need only identify the absence of factual support for one or more elements essential to New Orleans Equity’s claim of insurance coverage. If it does so, the burden shifts to New Orleans Equity to come forward with evidence establishing the element or evincing a genuine issue of material fact concerning the element.

When asked at her deposition whether there was a circumstance where “a substance that can’t be seen by the naked eye [satisfied] the terms of the policy … without scientific testing, ” Danielle Bouchard, the designated corporate representative of USSIC, responded: “Not that I can think of off the top of my head.” But Bouchard also testified that testing was not necessarily required to prove contamination “as long as there is evidence of that contamination.”

New Orleans Equity’s expert, Dr. David W.K. Acheson, states in his report that “[i]n the course of [the employee’s] shifts on March 10-13, restaurant receipts show that he served 18 cocktails, 10 salads, 2 shrimp remoulade salads, 2 iced teas, and 4 cold desserts to patrons.” Therefore, if the products were contaminated, some effects would presumably be seen. Yet, there has been no proof submitted by New Orleans Equity that any customer got sick from exposure linked to these items.

When no product has been shown to be contaminated, harm to consumers was neither probable nor possible in this situation. The insured is essentially asking the Court to rewrite the policy to require a likelihood that a product is contaminated rather than a likelihood that the contaminant it does contain is dangerous. At best, New Orleans Equity can only offer that there is a likelihood that the infected employee (the alleged contaminantor) may have contaminated insured products.

Absent any summary-judgment evidence that patrons actually contracted COVID-19 as a result of consuming the food they were served, New Orleans Equity has not demonstrated accidental contamination under the policy. On the summary-judgment record before the Court, New Orleans Equity did not carry its burden because they have not shown that accidental contamination occurred.

Bad Faith

Without a valid claim for insurance coverage, there can be no claim for statutory penalties and attorney’s fees against USSIC under Louisiana Revised. Thus, New Orleans Equity’s bad faith claim necessarily falls. Summary judgment for the insurer was granted and summary judgment for the insured was denied.

ZALMA OPINION

Although there was no virus or bacteria exclusion in the USSIC policy the insured still had to prove that the food it served had been contaminated because it was served by a waiter who had contracted Covid-19. They failed to do so and their expert was unable to say anything more than there was a possibility that customers had been infected and that some food may have been touched by droplits containing the Covid virus. It’s real loss was due to the shut down and its claim, although creative, was not capable of proof.

© 2021 – Barry Zalma Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at

http://www.zalma.com

and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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