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In what appears to be the first lawsuit of its kind in Pennsylvania, a Philadelphia restaurant filed a declaratory judgment action in federal court on April 10, 2020, seeking a ruling that it is entitled to insurance coverage for loss of business income due to its government-mandated closure on account of the COVID-19 pandemic.  LH Dining L.L.C. d/b/a River Twice Restaurant v. Admiral Indemnity Company, No. 2:20-cv-01869, U.S. District Court for the Eastern District of Pennsylvania. 

River Twice is a six-month old BYOB restaurant serving modern American cuisine in a gentrified section of South Philadelphia known as Passyunk Square.  The restaurant has been closed since March 16, 2020, when the City of Philadelphia announced the closure of all non-essential businesses.  A myriad of similar state and local orders followed, including Governor Tom Wolf’s March 19, 2020 order requiring the closure of all “non-life-sustaining businesses” in the Commonwealth, and his March 23, 2020 and April 1, 2020 “stay at home” orders.  Although some restaurants are open for pre-ordered take-out and delivery, per Philadelphia’s March 22, 2020 emergency order, customers are prohibited from dining at the premises in order to promote social distancing measures. 

The insured appears to be seeking coverage only under the “civil authority” extension of its “all-risk” insurance policy.  Civil authority coverage is usually included as part of business interruption coverage.  According to the Complaint, that provision provides coverage for the “actual loss of business income sustained … when access to the Insured Property is specifically prohibited by order of civil authority as the direct result of a covered cause of loss to property in the immediate area of Plaintiff’s Insured Property.” 

In an attempt to meet the insured’s burden of establishing the requisite “direct physical loss” to property under the policy, the Complaint alleges that the governmental orders at issue, “as they relate to the closure of all ‘non-life-sustaining businesses,’ evidence an awareness … that COVID-19 causes damage to property.”  It further alleges that the coronavirus is “contaminating” and “physically impacting” the restaurant to the point where remediation would be required to clean its surfaces.  According to the Complaint, “[a]ny effort by [the insurer] to deny the reality that the virus causes physical loss or damage would constitute a false and potentially fraudulent misrepresentation that could endanger the plaintiff and the public.”

The Complaint also directly acknowledges the existence of an exclusion in the policy for “loss due to virus or bacteria”.  However, it alleges, without elaborating, that the exclusion “does not apply to the business losses incurred by Plaintiff here.”  In a subsequent interview, counsel for the plaintiff argued that the “virus” exclusion was inapplicable because the coronavirus did not cause the business to close.  Rather, he said that it was the governmental “shutdown” orders that caused the closure, and therefore, the claim should be paid through the “civil authority” coverage provision. 

Here are a few additional observations:

  • The insured filed this lawsuit without first reporting the claim to its insurer or receiving a formal coverage position.  It apparently “heard” that the insurer was planning to decline coverage, presumably on the basis of the lack of direct physical loss or damage and the application of the virus exclusion in the policy. 
  • While the Complaint largely focuses its attention on the extent to which the coronavirus is “contaminating” and “physically impacting” the restaurant itself, the civil authority coverage is triggered only when the insured business is closed by governments on account of damage to “other property in the immediate area”, i.e., property other than the restaurant. 
  • The earlier wave of complaints seeking insurance coverage for COVID-19-related business interruption losses mostly alleged that the policies did not include a virus exclusion or remained silent on the issue.  This complaint, on the other hand, directly challenges the applicability of the virus exclusion; whether the insured will be able to overcome it remains to be seen. 
  • Most of the earlier COVID-19-related coverage actions were brought by relatively large restaurant groups, casinos or movie theater chains, including one group headed by the renowned chef Thomas Keller of French Laundry and Per Se fame.  Even with the loss of business income, these companies presumably have sufficient “deep pockets” to fund potentially expensive, protracted litigation, including the retention and use of experts on the key question of whether COVID-19 can cause “direct physical loss” or damage to property.  This case, by contrast, was filed by a single, small restaurant owned by the father of one of its two operators, who appears to be seeking a relatively “early” ruling interpreting the applicable language of the policy without having to incur significant litigation expenses.  The Complaint specifically indicates that it is not seeking “any determination of whether the Coronavirus is physically in or at the Insured Property, amount of damages, or any other remedy other than declaratory relief.”    

We will continue to monitor these and related issues, and please visit our website,, for further updates.