North Carolina's Supreme Court issued mixed rulings Friday for businesses seeking financial help from the COVID-19 pandemic, declaring one insurer's policy must cover losses some restaurants and bars incurred but that another insurer's policy for a nationwide clothing store chain doesn't due to an exception.
The unanimous decisions by the seven-member court in the pair of cases addressed the requirements of "all-risk" commercial property insurance policies issued by Cincinnati and Zurich American insurance companies to the businesses.
The companies who paid premiums saw reduced business and income, furloughed or laid off employees and even closed from the coronavirus and resulting 2020 state and local government orders limiting commerce and public movement. North Carolina restaurants, for example, were forced for some time to limit sales to takeout or drive-in orders.
In one case, the 16 eating and drinking establishments who sued Cincinnati Insurance Co., Cincinnati Casualty Co. and others held largely similar policies that protected their building and personal property as well as any business income from "direct physical loss" to property not excluded by their policies.
Worried that coverage would be denied for claimed losses, the restaurants and bars sued and sought a court to rule that "direct physical loss" also applied to government-mandated orders. A trial judge sided with them, but a panel of the intermediate-level Court of Appeals disagreed, saying such claims did not have to be accepted because there was no actual physical harm to the property — only a loss of business.
But state Supreme Court Associate Justice Anita Earls, writing for the court, noted he Cincinnati policies did not define "direct physical loss." Earls also noted there were no specific policy exclusions that would deny coverage for viruses or contaminants. Earls said the court favored any ambiguity toward the policyholders because a reasonable person in their positions would understand the policies include coverage for business income lost from virus-related government orders.
"It is the insurance company's responsibility to define essential policy terms and the North Carolina courts' responsibility to enforce those terms consistent with the parties' reasonable expectations," Earls wrote.
In the other ruling, the Supreme Court said Cato Corp., which operates more than 1,300 U.S. clothing stores and is headquartered in Charlotte, was properly denied coverage through its "all-risk" policy. Zurich American had refused to cover Cato's alleged losses, and the company sued.
But while Cato sufficiently alleged a "direct physical loss of or damage" to property, Earls wrote in another opinion, the policy contained a viral contamination exclusion Zurich American had proven applied in this case.
The two cases were among eight related to COVID-19 claims on which the Supreme Court heard oral arguments over two days in October. The justices have yet to rule on most of those matters.
The court did announce Friday that justices were equally divided about a lawsuit filed by then-University of North Carolina students seeking tuition, housing and fee refunds when in-person instruction was canceled during the 2020 spring semester. The Court of Appeals had agreed it was correct to dismiss the suit — the General Assembly had passed a law that gave colleges immunity from such pandemic-related legal claims for that semester. Only six of the justices decided the case — Associate Justice Tamara Barringer did not participate — so the 3-3 deadlock means the Court of Appeals decision stands.
