By Nathan Hale

Law360 (April 16, 2021, 10:39 PM EDT) -- Confronted with a growing number of court rulings in favor of insurers that denied business interruption coverage claims arising from the COVID-19 pandemic, a Florida restaurant on Friday raised what it suggested was a new argument for why the lack of a virus exclusion in its policy may change that trend.

That argument is connected to a line of Florida Supreme Court rulings, the restaurant's lawyer said.

During a Zoom hearing on its motion for a judgment on the pleadings, Chubb Ltd. unit Westchester Surplus Lines Insurance Co. argued that under Florida law, the court should not even reach arguments on the lack of a virus exclusion from plaintiff Café International Holding Co. LLC, which owns IT Italy Ristorante Cafe & Bar in downtown Fort Lauderdale.

The insurer said its decision not to include a standardized exclusion for damage or loss from a virus in the disputed policy is irrelevant because the restaurant has failed to satisfy the threshold issue of demonstrating that the coronavirus caused direct physical loss or damage to its property, as required to trigger coverage.

But Café International attorney Pablo Rojas of Podhurst Orseck PA countered that while it is true Florida courts have established such a sequential analysis, that first step of construing the coverage language is "a bit more nuanced" than the defense suggested.

"I hate to say this, but it's complicated," Rojas told Miami-based U.S. Magistrate Judge Jonathan Goodman, who is presiding over the case.

Rojas said that while preparing a response to Westchester's motion, he discovered an entire line of rulings in which the Florida Supreme Court held repeatedly that when construing coverage language, it must be done in a way that is harmonious with any exclusions so as not to render them superfluous.

But Westchester's position that Café International's policy covers only tangible, structural damage makes exclusions that are in the restaurant's policy for risks such as failures by power or other utilities and fungus or bacteria superfluous, Rojas argued.

The Florida Supreme Court's rulings should keep the restaurant's argument about the lack of a virus exclusion in play, Rojas argued, and in turn its argument that the nature of its "all-risks" policy means it has broad coverage where "the boundaries of coverage are defined by sort of chipping away at that coverage language through exclusions."

"I think that that interpretive principle that those Florida Supreme Court cases articulated is even more apt in an all-risks policy," Rojas said. "You have to construe the coverage language harmoniously with the exclusions because it's in the nature of an all-risks policy that the exclusions are really driving the ship of what's covered."

While Judge Goodman characterized what he coined as the "harmonious construction rule" as a "wonderful theory" and a "good comeback," Café International still appears to face an uphill battle.

The judge pressed Rojas on the opening presentation from Westchester counsel Steven J. Brodie of Carlton Fields PA, who told the court that the defense is aware of 32 decisions in which state and federal courts have applied Florida law to insurers' motions to dismiss, ruling in insurers' favor in all of them.

Rojas responded that Café International's case features notable distinctions from many of those cases and said that they actually agree with some of those rulings, including in some cases where businesses, for whatever reason, expressly disclaimed physical damage or loss to their premises. And he said he was not aware of any that addressed the Florida Supreme Court precedent he raised Friday.

But Brodie hammered Café International for failing to provide specific facts on its alleged physical damages even when effectively given a chance by the court to amend its complaint during the two-and-a-half-hour Zoom hearing.

Brodie argued that the exclusions in Café International's policy for risks like mold or bacteria could result in physical damage. But on the other hand, the Eleventh Circuit's decision in Mama Jo's Inc. v. Sparta Ins. Co. , in which the appeals court rejected a Miami restaurant's claim coverage due to dust from nearby roadwork that it said led to loss of income, established that a contaminant like the coronavirus, which science has shown can be cleaned away, does not.

The court, he insisted, does not need to go further than that question, and should not consider the lack of a virus exclusion.

"I think the law is clear that we have to look at this policy that was a contract between Café International and Westchester and that is the four corners of what the court has to look at — in the four corners of the complaint — to see whether or not they stated a cause of action," Brodie said.

Westchester also sought Friday to rebut Café International's claims that it should pay out under "extra expense" coverage in the policy, for expenses that it has incurred to minimize the suspension of its business, and "civil authority" coverage, for the loss of business income caused by the government prohibiting access to the restaurant.

Judge Goodman took the matter under advisement and also issued a stay on discovery over objections from Café International.

Cafe International is represented by Stephen N. Zack, Bruce Weil, James Lee and Marshall Dore Louis of Boies Schiller Flexner LLP and Steven C. Marks, Aaron S. Podhurst, Lea P. Bucciero, Matthew P. Weinshall, Kristina M. Infante and Pablo Rojas of Podhurst Orseck PA.

Westchester Surplus Lines is represented by Richard B. Goetz, Allen Burton, Amy Laurendeau and Daniel M. Petrocelli of O'Melveny & Myers LLP and Steven J. Brodie, Heidi Hudson Raschke and Andrew K. Daechsel of Carlton Fields PA.

The case is Cafe International Holding Co. LLC v. Westchester Surplus Lines Insurance Co., case number 1:20-cv-21641, in the U.S. District Court for the Southern District of Florida.

--Additional reporting by Carolina Bolado. Editing by Bruce Goldman.

Correction: An earlier version of this story misstated the name of one of the attorneys.

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