By Shawn Rice

Law360 (May 12, 2021, 6:39 PM EDT) -- A Missouri federal judge tossed a taco restaurant chain's COVID-19 business interruption suit on Tuesday, saying government shutdown orders to curb the pandemic didn't cause a physical loss or damage triggering coverage with the Cincinnati Insurance Co.

U.S. District Judge Ronnie L. White ruled that Seoul Taco restaurant owners aren't covered by Cincinnati for losses caused by forced closures during the pandemic. The judge dismissed the suit, nine months after the same insurer faced a loss in the heavily cited Studio 417 Inc. et al. v. The Cincinnati Insurance Co.

Since Studio 417, Judge White said other Missouri federal courts and the majority of federal courts across the country have found no coverage for government shutdowns and the presence of the coronavirus without a physical loss. A business' "loss of use" of property isn't enough to trigger coverage, he said.

Richard M. Elias of Elias LLC, counsel for the Seoul Taco restaurants, told Law360 on Wednesday that his client was disappointed with Judge White's ruling and disagreed with the outcome.

"Our client's restaurants suffered losses due to the contamination of their premises with the COVID-19 virus. The notion that losses stemming from a physical infestation of a premises with a deadly virus do not, as a matter of law, constitute a physical loss is, in our view, untenable," Elias said.

The Seoul Taco restaurants relied primarily on Studio 417, in which U.S. District Judge Stephen R. Bough of the Western District of Missouri, in a first-of-its-kind ruling, gave a group of hair salons and restaurants the chance in August 2020 to proceed with a proposed class business interruption suit against Cincinnati.

The restaurants said there was a physical loss caused by the coronavirus contaminating the premises. This contamination forced the closure, triggering business income coverage with Cincinnati, the Seoul Taco restaurants argued, saying the orders caused losses covered under the policy's civil authority provision.

In Tuesday's ruling, Judge White disagreed with Studio 417's rejection regarding the need for "actual, tangible, permanent, physical alteration" to property. The "loss of use" of the Seoul Taco restaurants by the government shutdown orders wasn't enough to trigger coverage with Cincinnati, the judge ruled.

A physical change to the property is needed for there to be a physical loss or damage, the judge said.

Judge White held that it isn't enough to allege the coronavirus was on the premises or a person testing positive for the virus was on the property. The virus can be cleaned and disinfected from surfaces, the judge said, rejecting Studio 417's position that COVID-19 attaches to property, making it "unsafe and unusable."

A spokesperson for Cincinnati told Law360 on Wednesday that the insurer appreciated the case being heard and agreed with the outcome that "the coronavirus does not constitute a direct physical loss — a prerequisite for coverage — because it does not physically alter the property."

"We recognize the challenges facing many small businesses. We have been, and continue to be, committed to doing our part to support the families and businesses in our agents' communities, including helping them to proactively manage risks and promptly paying covered claims," the spokesperson said.

The restaurants are represented by Richard M. Elias of Elias LLC.

Cincinnati is represented by Brian K. McBrearty and Dennis M. Dolan of Litchfield Cavo LLP.

The case is Seoul Taco Holdings LLC et al. v. Cincinnati Insurance Co., et al., case number 4:20-cv-1249, in the U.S. District Court for the Eastern District of Missouri.

--Additional reporting by Jeff Sistrunk. Editing by Haylee Pearl.

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