CAJUN CONTI LLC, CAJUN * NO. 2021-CA-0343 CUISINE 1 LLC, AND CAJUN CUISINE LLC D/B/A OCEANA * GRILL COURT OF APPEAL * VERSUS FOURTH CIRCUIT * CERTAIN UNDERWRITERS STATE OF LOUISIANA AT LLOYD'S, LONDON AND ******* GOVERNOR JOHN B. EDWARDS IN HIS OFFICIAL CAPACITY AS GOVERNOR OF THE STATE OF LOUISIANA, AND THE STATE OF LOUISIANA
APPEAL FROM CIVIL DISTRICT COURT, ORLEANS PARISH NO. 2020-02558, DIVISION “M” Honorable Paulette R. Irons, Judge ****** Chief Judge Terri F. Love ****** (Court composed of Chief Judge Terri F. Love, Judge Roland L. Belsome, Judge Joy Cossich Lobrano, Judge Sandra Cabrina Jenkins, Judge Pro Tempore Lynn M. Luker)
BELSOME, J., DISSENTS WITH REASONS LOBRANO, J., CONCURS AND ASSIGNS REASONS LUKER, J., PRO TEMPORE, DISSENTS FOR THE REASONS ASSIGNED BY J., BELSOME
John W. Houghtaling, II GAUTHIER, HOUGHTALING & WILLIAMS, L.L.C. 3500 North Hullen Street Metairie, LA 70002
Jennifer Perez GAUTHIER MURPHY & HOUGHTALING, L.L.C. 3500 N. Hullen St Metairie, LA 70002
Daniel Ernest Davillier DAVILLIER LAW GROUP 1010 Common Street, Suite 2510 New Orleans, LA 70112 Roderick Rico Alvendia ALVENDIA KELLY & DEMAREST, L.L.C. 909 Poydras Street, Suite 1625 New Orleans, LA 70112-4500
Jennifer L. Kuechmann ALVENDIA, KELLY & DEMAREST, L.L.C. 909 Poydras Street, Suite 1625 New Orleans, LA 70112
James M. Williams CHEHARDY SHERMAN WILLIAMS MURRAY RECILE STAKELUM & HAYES, LLP One Galleria Boulevard, Suite 1100 Metairie, LA 70001
Phillip J. Laborde CHEHARDY SHERMAN WILLIAMS MURRAY RECILE STAKELUM & HAYES, LLP One Galleria Boulevard, Suite 1100 Metairie, LA 70001
Matthew A. Sherman CHEHARDY SHERMAN WILLIAMS MURRAY RECILE STAKELUM & HAYES, LLP One Galleria Boulevard, Suite 1100 Metairie, LA 70001
Bernard Louis Charbonnet, Jr. LAW OFFICES OF BERNARD L. CHARBONNET, JR. 365 Canal Street One Canal Place, Suite 1155 New Orleans, LA 70130
Desiree Mary Charbonnet Law Office Desiree M. Charbonnet LLC 365 Canal Street Suite 1100 New Orleans, LA 70130
Anthony David Irpino IRPINO LAW FIRM 2216 Magazine Street New Orleans, LA 70130
Richard P. Lewis REED SMITH, LLP Three Logan Square 1717 Arch Street Suite 3100 Philadelphia, PA 19103
John N. Ellison REED SMITH, LLP 599 Lexington Avenue 22nd Floor New York, NY 10022
COUNSEL FOR PLAINTIFF/APPELLANT
Kyle D. Schonekas SCHONEKAS EVANS McGOEY & McEACHIN, L.L.C. 909 Poydras Street, Suite 1600 New Orleans, LA 70112
Joelle Flannigan Evans SCHONEKAS EVANS McGOEY & McEACHIN, L.L.C. 909 Poydras Street, Suite 1600 New Orleans, LA 70112
Heather S. Duplantis PHELPS DUNBAR LLP 400 Convention Street, Suite 1100, II City Plaza P. O. Box 4412 Baton Rouge, LA 70821-4412
Thomas H. Peyton PHELPS DUNBAR, LLP 365 Canal Street, Suite 2000 New Orleans, LA 70130
Allen C. Miller, Sr. PHELPS DUNBAR LLP 365 Canal Street, Suite 2000 New Orleans, LA 70130-6534
Virginia Y. Dodd PHELPS DUNBAR LLP 400 Convention Street, Suite 1100 Baton Rouge, LA 70802
Kevin W. Welsh PHELPS DUNBAR LLP 400 Convention Street, Suite 1100 Baton Rouge, LA 70802 Martin A. Stern ADAMS AND REESE LLP 701 Poydras Street, Suite 4500 New Orleans, LA 70139
Leigh Ann Schell ADAMS AND REESE LLP 4500 One Shell Square New Orleans, LA 70193
Sara C. Valentine ADAMS AND REESE LLP 701 Poydras Street, Suite 4500 New Orleans, LA 70139
Alexandra Roselli Lamb ADAMS AND REESE, LLP 701 Poydras Street, Suite 4500 New Orleans, LA 70139
COUNSEL FOR DEFENDANT/APPELLEE
REVERSED JUNE 15, 2022 TFL Cajun Conti LLC, Cajun Cuisine I LLC, and Cajun Cuisine LLC d/b/a SCJ Oceana Grill (hereinafter collectively “Oceana”) filed a petition for declaratory
judgment regarding an all-risks insurance policy they purchased from Certain
Underwriters at Lloyd’s, London (Lloyd’s). In their petition, the appellants sought
a declaration that the insurance policy provided coverage for any loss or damage
caused by direct physical loss of or damage to their insured premises as a result of
continuous contamination by COVID-19. Lloyd’s argued that contamination due
to COVID-19 did not constitute “direct physical loss or damage” and filed a
motion for summary judgment, which the trial court denied. After a bench trial,
the trial court denied Oceana’s petition for declaratory judgment. Oceana
subsequently appealed this judgment.
Upon review, we conclude that the insurance policy is ambiguous and
capable of more than one reasonable interpretation in regards to the coverage of
lost business income. Due to the existing ambiguity in the relevant policy
1 language, the contract should be interpreted in favor of the appellants. Therefore,
we reverse the trial court’s judgment.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Oceana is the owner and operator of Oceana Grill in the French Quarter of
New Orleans. Prior to the onset of the COVID-19 pandemic, Oceana Grill
employed 200 staff members and could accommodate up to 500 guests at a time.
After the emergence of the COVID-19 pandemic, on March 16, 2020, the mayor of
New Orleans prohibited non-emergency public and private social gatherings and
limited restaurant operations to take-out and delivery services via an emergency
proclamation. As time passed, the mayor issued other proclamations facilitating
the return of in-person dining at different occupancy levels. Additionally, the
Centers for Disease Control (“CDC”) issued guidelines and procedures for
restaurants and bars to abate the spread of the contagious virus on their properties.
Oceana closed the Oceana Grill dining rooms on March 16, 2020, in
compliance with the mayor’s proclamation, and reopened on May 16, 2020, in
keeping with updated mayoral guidelines. The guidelines envisioned a phased
reopening plan based on the prevalence of COVID-19 in the city. The May re-
opening of Oceana Grill was undertaken with a 75% diminishment of the
property’s normal capacity. Capacity increased on June 13, 2020 and on October
3, 2020, but the property still operated at 40%-45% under capacity due to the
spread of COVID-19 in the city. To mitigate the spread of COVID-19 particles
within its property, Oceana modified seating arrangements, decreased the number
2 of tables and floor area available for patrons, and implemented measures to sanitize
surfaces.
On March 16, 2020, Oceana filed a petition for declaratory judgment
seeking a declaration from the district court that a policy issued to it by Lloyd’s
covered certain losses related to the pandemic. The policy in question is an all-
risks commercial insurance policy with a $91,000 premium. The policy covers
losses due to “direct physical loss of or damage to” the insured property. Lost
business income and extra expenses are covered for losses sustained due to
necessary suspensions of the property’s operations during the “period of
restoration.” The “period of restoration” is defined as commencing seventy-two
hours after the physical loss or damage occurs and continuing until the date when
the property is “repaired, rebuilt, or replaced with reasonable speed and similar
quality” or when business is “resumed at a new permanent location.”
Oceana’s initial petition sought a declaration that the policy contained
coverage “for any future civil authority shutdowns of restaurants in the New
Orleans area due to physical loss from Coronavirus contamination and that the
policy provides business income coverage in the event that the coronavirus has
contaminated the insured premises.” In subsequent amendments, Oceana sought a
declaration that the policy provided coverage for any loss or damage caused by
“direct physical loss of or damage to” their insured premises as a result of
continuous contamination by COVID-19.
3 In response, Lloyd’s filed a motion for summary judgment arguing that the
claims are not covered because contamination due to coronavirus did not constitute
“direct physical loss of or damage to” property. Lloyd’s contended that the
petition lacked any genuine issues of material fact and that it was entitled to
summary judgment as matter of law. The trial court denied Lloyd’s motion for
summary judgment and held a bench trial. Following the trial, the trial court
rendered judgment denying Oceana’s petition for declaratory judgment. Oceana
filed the present appeal.
DISCUSSION
Standard of Review
Trial courts possess great discretion in considering petitions for declaratory
relief. Deep South Center for Envtl. Justice v. Council of City of New Orleans, 19-
0774, p. 17 (La. App. 4 Cir. 2/12/20), 292 So. 3d 973, 984 (citing Delta Admin.
Servs., L.L.C. v. Limousine Livery, Ltd., 15-0110, p. 6 (La. App. 4 Cir. 6/17/15),
216 So. 3d 906, 910). Appellate courts review these decisions under an abuse of
discretion standard. Id. The Louisiana Code of Civil Procedure Article 1872
authorizes the use of declaratory judgment proceedings in construing contracts.
Legal questions of contractual interpretation are subject to de novo review
by appellate courts. Armstrong Airport Concessions v. K-Squared Restaurant,
LLC, 15-0375, p. 9 (La. App. 4 Cir. 10/28/15), 178 So. 3d 1094, 1101 (citing
Subervielle v. State Farm Mut. Auto. Ins. Co., 08-0491, p. 2 (La. App. 4 Cir.
1/7/09), 32 So. 3d 811, 812). “Appellate courts apply the ‘manifest error’ or
4 ‘clearly wrong’ standard when reviewing a trial court’s findings of fact.”
Greenblatt v. Sewerage & Water Board of New Orleans, 19-0694, p. 3, (La. App. 4
Cir. 12/20/19), 287 So. 3d 763, 766 (citing Rosell v. ESCO, 549 So. 2d 840, 844
(La. 1989) (citations omitted)).
“Thus, applying these precepts to the case sub judice, this Court must
determine whether the district court abused its discretion in granting the
declaratory judgment and whether the district court’s review and analysis of the
contract was legally correct.” Brady v. Pirner, 18-0556, p. 11 (La. App. 4 Cir.
12/5/18), 261 So. 3d 867, 874-75.
Insurance policies should be interpreted under ordinary rules of contract
interpretation. Sumner v. Mathes, 10-0438, p. 5 (La. App. 4 Cir. 11/24/10), 52 So.
3d 931, 934 (citing Peterson v. Schimek, 98-1712, pp. 4-5 (La. 3/2/99), 729 So. 2d
1024, 1028-29). The rules of contractual interpretation are laid out in the
Louisiana Civil Code. Pursuant to La. C.C. art 2047, the “words of a contract are
given their generally prevailing meaning”, while “[w]ords of art and technical
terms must be given their technical meaning when the contract involves a technical
matter.” The words used in insurance policies are to be interpreted “in their plain,
ordinary and popular sense.” Central Louisiana Elec. Co., Inc. v. Westinghouse
Elec. Corp., 579 So. 2d 981, 986 (La. 1991) (citing Muse v. Metropolitan Life Ins.
Co., 193 La. 605, 192 So. 72 (La. 1939)).
“Words susceptible of different meanings must be interpreted as having the
meaning that best conforms to the object of the contract.” La. C.C. art 2048. “A
5 doubtful provision must be interpreted in light of the nature of the contract, equity,
usages, the conduct of the parties before and after the formation of the contract,
and of other contracts of a like nature between the same parties.” La. C.C. art.
2053.
If a contractual provision is susceptible of different meanings, it “must be
interpreted with a meaning that renders it effective and not with one that renders it
ineffective.” La. C.C. art 2049. In other words, “[i]nsurance policies should be
construed to effect, rather than to deny coverage.” Davis v. Nola Home
Construction, L.L.C., 16-1274, p. 14 (La. App. 4 Cir. 6/14/17), 222 So. 3d 833, 844
(citing Supreme Services and Specialty Co., Inc. v. Sonny Greer, Inc., 06-1827, p.
6 (La. 5/22/07), 958 So. 2d 634, 638). However, efforts to interpret insurance
contracts must not be undertaken in “an unreasonable or strained manner” so as to
“enlarge or to restrict its provisions beyond what is reasonably contemplated by
unambiguous terms.” Sumner, 10-0438, p. 5, 52 So. 3d at 934 (citing Rolston v.
United Services Automobile Ass’n, 06-0978, p. 4 (La. App. 4 Cir. 12/13/06), 948
So. 2d 1113, 1117).
A contractual term is “not automatically considered ambiguous merely
because it is not defined in the contract.” Sumner, 10-0438, p. 6, 52 So. 3d at 935.
“However, if the insurance policy is susceptible to two or more reasonable
interpretations, then it is considered ambiguous and must be liberally interpreted in
favor of coverage.” Supreme Services, 06-1827, p. 6, 958 So. 2d at 638 (citing
Reynolds v. Select Properties, Ltd., 93-1480 (La. 4/11/94), 634 So. 2d 1180, 1183;
6 Newby v. Jefferson Parish Sch. Bd., 99-0098 (La. App. 5 Cir. 6/1/99), 738 So. 2d
93).
Additionally, when a contractual term is adjudged to be ambiguous, parole
evidence becomes admissible “to clarify the ambiguity and to show the intention of
the parties. Dixie Campers, Inc. v. Vesely Co., 398 So. 2d 1087, 1089 (La. 1981)
(citing White v. Rimmer & Garrett, Inc., 340 So. 2d 283 (La. 1976); Gulf States
Finance Corp. v. Airline Auto Sales, Inc., 248 La. 591, 181 So. 2d 36 (1965);
Moreau v. Otis Elevator Co., 531 F. 2d 311 (5th Cir. 1976)).
“It is well settled that a court of appeal may not set aside a trial court’s or a
jury’s finding of fact in the absence of ‘manifest error’ or unless it is ‘clearly
wrong.’” Snider v. Louisiana Medical Mut. Ins. Co., 14-1964, p. 5 (La. 5/5/15),
169 So. 3d 319, 323 (citing Rosell v. ESCO, 549 So. 2d 840, a844 (La. 1989)).
The appellate court must review the entirety of the record to evaluate “whether the
fact-finder's conclusion was a reasonable one.” Id. (citing Clay v. Our Lady of
Lourdes Regional Medical Center, 11-1797 (La. 5/8/12), 93 So. 3d 536, 543).
Assignments of Error
In their first assignment of error, the appellants claim that the district court
erred in concluding that their premises did not sustain a direct physical loss or
damage under the terms of the contract as a result of continuous contamination by
the COVID-19 coronavirus. In their second assignment of error, the appellants
argue, in the alternative, that the district court erred in concluding that the
commercial property policy that the appellee drafted and sold to Oceana was not
7 ambiguous. The appellants further argue that this ambiguity requires the court to
liberally construe the policy in favor of coverage.
The question posed by the appellants in their first assignment of error is a
factual one, subject to the manifest error/clearly wrong standard of review.
Gordon v. Gordon, 16-0008, p. 2 (La. App. 4 Cir. 6/8/16), 195 So.3d 687, 688-89
(citing Hall v. Folger Coffee Co., 03-1734, p. 9 (La. 4/14/04), 874 So. 2d 90, 98).
However, the question of whether ambiguity exists in the policy terms is a legal
question requiring an examination of the contractual language and subject to de
novo review. Armstrong Airport Concessions, 15-0375, p. 9, 178 So. 3d at 1101
(citation omitted). These two assignments of error were propounded in the
alternative. We focus on the question of ambiguity, as we believe it resolves the
matter at hand.
The policy at issue is an “all-risk” commercial insurance policy that covered
the appellants’ loss of business income sustained due to necessary “suspension” of
operations during the “period of restoration.” The “suspension” must be caused by
“direct physical loss of or damage to the property.” “All-risk” insurance policies
cover all risks “unless clearly and specifically excluded.” Widder v. Louisiana
Citizens Prop. Ins. Corp., 11-0196, p. 4 (La. App. 4 Cir. 8/10/11), 82 So. 3d 294,
296, writ denied, 11-2336 (La. 12/02/11), 76 So. 3d 1179. The policy does not
define “direct physical loss” or “damage.”
The Supreme Court of Louisiana has previously defined the meaning of
“direct,” in relation to “loss or damage” in an insurance contract, as signifying
8 “immediate or proximate as distinguished from remote.” Central Louisiana Elec.
Co., Inc., 579 So. 2d at 985 n. 8 (citing Lorio v. Aetna Ins. Co., 255 La. 721, 232
So. 2d 490 (1970)). The appellants discussed this Court’s examination of what
constitutes “direct physical loss of or damage to the property” in Widder v.
Louisiana Citizens Prop. Ins. Corp., a residential lead contamination case.
Widder held that physical damage was not necessary to trigger coverage in a
homeowner policy because the insured property was “rendered unusable or
uninhabitable.” Widder, 11-0196, p. 4, 82 So. 3d at 296 (citing In re Chinese
Manufactured Drywall Products Liability Litigation, 759 F. Supp. 2d 822 (E.D.
La. 2010); Ross v. C. Adams Construction & Design, 10-852 (La. App. 5 Cir.
6/14/11), 70 So. 3d 949). Widder’s holding relies on a line of defective drywall
cases wherein drywall installed on insured property was physically intact, but its
inherent defects required that it be replaced in order for the property to be usable.
The appellee asserts that Widder and associated drywall cases do not apply to the
facts herein because the appellants continued operations with employees and some
patrons, and the property was not uninhabitable or useless as it was in Widder and
the drywall cases.
However, the policy covers the loss of business income due to necessary
“suspension” of operations caused by “direct physical loss of or damage to the
property.” “Suspension” is defined in the policy as the “slowdown or cessation of
your business activities.” Therefore, under the terms of the contract, the complete
cessation of operations and an uninhabitable property are not prerequisites to
9 payment for business losses suffered due to the suspension of operations caused by
“direct physical loss of or damage to the property.” Suspension includes the
slowdown of business activities, which occurred here, as well as the complete
cessation of business operations which occurs when a property is entirely
uninhabitable.
The appellee also argues that Widder’s holding is inapposite because this
matter deals with a business property policy, not a homeowner policy, and a viral
contagion, not defective drywall. However, it is possible to review conceptual
commonalities between different types of insurance policies without
inappropriately extending a court’s holding. The central inquiry remains focused
upon “the words of the contract” itself. See La. C.C. art 2047. “Most importantly,
a contract ‘must be interpreted in a common-sense fashion, according to the words
of the contract their common and usual significance.’” Prejean v. Guillory, 10-
0740, p. 7 (La. 7/2/10), 38 So.3d 274, 279 (quoting Lambert v. Maryland Cas. Co.,
418 So. 2d 553, 559 (La. 1982)).
The appellee notes that the insurance policies in the drywall cases “all define
‘property damage’ to include loss of use of tangible property.” In re Chinese
Manufactured Drywall Prods. Liab. Litig., 759 F. Supp. 2d 822, 832 (E.D. La.
2010). The appellee argues that this language is distinct from the present case,
where the loss itself must be “physical.” The appellee points to recent cases in
other jurisdictions that have interpreted “physical” in relation to coronavirus claims
10 as requiring a tangible or corporeal loss of property or damage. The cases
referenced by the appellee are not binding upon this Court.
Moreover, many cases in other jurisdictions have reached a contrary
conclusion and extended coverage to losses arising from disease-causing agents
with a tangible physical form but which are, nevertheless, not discernible with the
naked human eye. See Port Authority of N.Y. and N.J. v. Affiliated FM Ins. Co.,
311 F.3d 226, 235-36 (3d Cir. 2002) (holding that “physical loss or damage” exists
if asbestos fibers contaminate the insured property such that it is uninhabitable, or
if there is an imminent threat of the release of a quantity of asbestos fibers that
would cause a loss of utility”); See Farmers Ins. Co. of Or. v. Trutanich, 123 Or.
App. 6, 858 P.2d 1332, 1335 (1993) (finding that odor is a “physical” trait because
it damaged the insured property and concluding that the “cost of removing the odor
is a direct physical loss”); See Matzner v. Seaco Ins. Co., No. CIV. 96-0498-B,
1998 WL 566658, at *4 (Mass. Super. 1998) (ruling that “carbon-monoxide
contamination constitutes ‘direct physical loss of or damage to’ property”). This
Court, in Widder, joined this line of cases extending coverage for a broader array
of losses caused by disease-causing agents with a tangible, but microscopic,
physical form.
The appellee further contends that this Court has previously rejected the
argument that “physical loss of or damage to” was ambiguous in a business
interruption suit. Yount v. Lafayette Ins. Co., 08-0380 (La. App. 4 Cir. 1/28/09), 4
So. 3d 162. In Yount, a doctor sued for property damage and economic losses
11 suffered after her medical office was damaged in Hurricane Katrina. Id., 08-0380,
p. 3, 4 So. 3d at 165. The policy provided coverage for lost business income due to
suspension of business activities “caused by direct physical loss of or damage to
property.” Id., 08-0380, p. 4, 4 So. 3d at 166. The doctor argued that the policy
language was ambiguous because it could be “interpreted to mean the plaintiff
need only suffer damage to the insured property, not necessarily direct or
physical.” Id., 08-0380, p. 9, 4 So. 3d at 168. The doctor took the position that in
the policy provision requiring “physical loss of or damage to the property,” the
words “direct physical” only modified “loss,” and not “damage.” Id.
This Court held that “the policy provision at issue to be clear and
unambiguous as applied under the facts of this case.” Id., 08-0380, p. 10, 4 So. 3d
at 169 (emphasis added). Consequently, Yount does not stand for the proposition
that the terms “physical loss of or damage to” are not ambiguous. Rather, the
Court held that, under the facts of that case, and in the context of the specific
ambiguity argument proffered by the policyholder in Yount, the terms were not
ambiguous. Id.
Under the facts of this viral contagion case, an equal level of clarity is
absent. One reasonable interpretation of the provision is that suspension of
business operations due to “direct physical loss of or damage to the property”
means the loss of the property’s full use, as the appellants argue. In this case, the
appellants were unable to fully utilize the insured property due to the viral particles
inside the property. The physical presence of these viral particles necessitated
12 diminished capacity, constant decontamination efforts, and caused a slowdown of
their business.
The appellants closed their dining rooms on March 16, 2020, and reopened
on May 16, 2020. They reopened with a 75% diminishment of the restaurant’s
capacity due to the prevalence of COVID-19, in compliance with government
mandates. Capacity increased on June 13, 2020 and on October 3, 2020, but the
property still operated at 40%-45% under capacity due to the ongoing
omnipresence of the coronavirus.
The appellants presented the testimony of Doctor Lemuel Moye, accepted as
an expert in general medicine, biostatistics, epidemiology, and virology. Dr. Moye
found that there was an “overwhelming probability” that there were people in the
restaurant infected with COVID-19 at all times relevant to this suit. Dr. Moye
further testified that viral particles can remain in the air for over an hour and can
contaminate surfaces.
Although the appellee’s expert witness testified that there have been no
known infections caused by interactions between humans and an inanimate
surface, the appellants demonstrated that contagion-causing viral particles persisted
in the air of the premises. The physical presence of COVID-19 substantially
diminished the usable space of the property, as tables needed to be pushed farther
apart, and resulted in economic losses due to the slowdown of the appellants’
business. Stated differently, the physical presence of infectious viral particles
13 decreased the habitable portion of the insured property and caused a slowdown of
business activities.
Another reasonable interpretation of the provision is that the suspension of
business operations due to “direct physical loss of or damage to the property”
requires the full loss of the property’s use, a situation distinct from the loss of the
property’s full use. Under this scenario, the appellants would have had to shut
down their restaurant completely for some period of time in order to qualify for
coverage.
“Ambiguity in an insurance policy must be resolved by construing the policy
as a whole; one policy provision is not to be construed separately at the expense of
disregarding other policy provisions.” La. Ins. Guar. Ass’n v. Interstate Fire &
Cas. Co., 93-0911, (La. 1/01/94), 630 So. 2d 759, 763-64. The policy under
review in this case is an “all-risk” policy, “where all risks are covered unless
clearly and specifically excluded.” Widder, 11-0196, p. 4, 82 So. 3d at 296 (citing
Morgan v. Auto Club Family Ins. Co., 04-1562, p. 4 (La. App. 3 Cir. 4/6/05), 899
So. 2d 135, 137; Dawson Farms, L.L.C. v. Millers Mut. Fire Ins. Co., 34,801, p. 3
(La. App. 2 Cir. 8/1/01), 794 So. 2d 949, 950). Additional context is provided in
the policy’s definition of “suspension”, which includes both a “slowdown” and a
“cessation” of business activities.” The words of the policy foresee a situation in
which business losses can be covered by less than the complete destruction of the
property or less than the complete loss of the property’s utility. Construing the
policy as a whole does not resolve the ambiguity inherent in “loss” for viral
14 contagions, as the dual definition of suspension allows for both reasonable
interpretations of loss.
Reference to external definitions of “loss” accentuate the ambiguity. Loss is
defined in one dictionary as “the fact that you no longer have something or have
less of something.”1 Another dictionary provides that loss is the “destruction,
ruin,” “the act or fact of being unable to keep or maintain something or someone,”
and “the partial or complete deterioration or absence of a physical capability or
function.”2
The presence of this ambiguity and the existence of two equally reasonable
interpretations as to what constitutes a “direct physical loss of or damage to” the
insured property requires the Court to liberally construe the provision in favor of
coverage for the appellants and against the appellee, who drafted the vague
provision. La. C.C. art 2056; Edwards v. Daugherty, 03-2103, p. 22 (La. 10/1/04),
883 So. 2d 932, 947 (finding ambiguity in a provision regarding the burden of
defense costs and expenses and barring the insurer from deducting defense costs);
Osbon v. Nat'l Union Fire Ins. Co., 93-1975, p. 2 (La. 2/28/94), 632 So. 2d 1158,
1159-60 (finding ambiguity in the phrase “the insured” because it could refer to the
named insured, any insured as defined in the policy, or the particular insured
seeking coverage); Garcia v. St. Bernard Parish School Bd., 576 So. 2d 975, 976
(La. 1991) (concluding that an exclusionary provision for sports contests was
1 Loss Definition, MERRIAM-WEBSTER, https://www.merriam-webster.com/dictionary/loss
(last visited June 9, 2022). 2 Loss Definition, CAMBRIDGE DICTIONARY,
https://dictionary.cambridge.org/us/dictionary/english/loss (last visited June 9, 2022).
15 ambiguous because it could reasonably be interpreted as not clearly excluding
injuries sustained while cheerleading at a football game).
Even if coverage is found to exist, the appellee argued that the only
compensable lost income under the policy is that which falls within the “period of
restoration.” The appellee contends that the appellants did not experience a
“period of restoration” and, as a result, are unable to recover any alleged lost
income. The “period of restoration” is defined as the period of time beginning
seventy-two hours after the time of the loss or damage and ending the earlier of
either (1) when the property is repaired, rebuilt or replaced with reasonable speed
and similar quality, or (2) the date when business is resumed at a new, permanent
location.
It is unclear what would constitute “repair” in light of a viral outbreak.
Repair is defined as “to restore by replacing a part or putting together what is torn
or broken” and “to restore to a sound or healthy state.”3 It could be that the “period
of restoration” provision requires the wholesale and permanent repair of physical
objects within the property. However, under the plain meaning of “repair”, it is
equally plausible that some portion of the cycle of cleaning and decontamination
fulfills the definition of restoring the property to a healthy state.
Given the existence of multiple plausible interpretations of these two
provisions, the policy is ambiguous as to what constitutes a covered “direct
3 Repair Definition, MERRIAM-WEBSTER, https://www.merriam-
webster.com/dictionary/repair (last visited March 24, 2022).
16 physical loss of or . . . to the property” and coverage should, therefore, be
construed in favor of the appellants.
Furthermore, the ambiguity of the provision now renders parole evidence
admissible to clarify the ambiguity or show the parties’ intent. Succession of
Barreca v. Weiser, 10-0574, p. 16 (La. App. 4 Cir. 11/3/10), 53 So. 3d 481, 491.
“Ambiguity will also be resolved by ascertaining how a reasonable insurance
policy purchaser would construe the clause at the time the insurance contract was
entered.” Breland v. Schilling, 550 So. 2d 609, 610-11 (La. 1989). Examining the
evidence introduced by the appellants,4 it is apparent that at the time that the policy
was issued, viral exclusions which eliminated the insurer’s liability for loss or
damage caused by a virus were available on the market. However, the appellee did
not include a viral exclusion in the policy it drafted and sold to the appellants.
Additionally, the appellants’ general manager testified that he would not have
bought a policy that excluded coverage for viruses or bacteria because the business
sold raw oysters to customers. His testimony provides insight regarding how the
appellants reasonably construed the policy at the time of its purchase. This
evidence strengthens the equity of construing coverage in favor of the appellants,
pursuant to La. C.C. art. 2053.
Application of the ordinary rules of contract interpretation reveals the
ambiguities present in the insurance policy that the appellee drafted and sold to the
4 Although the trial court did not issue reasons for its judgment, the fact that it allowed this
otherwise impermissible evidence to be introduced over the objections of the appellee suggests that it also found the provision to be ambiguous, and ultimately admitted it as parole evidence.
17 appellants. The ambiguities are amplified by the presence of two equally
reasonable interpretations as to what constitutes a “direct physical loss of or
damage to” the insured property and the subsequent “repair” of the insured
property. Thus, this Court is compelled to liberally construe the provision in favor
of coverage for the appellants and against the appellee, who drafted the vague
provision. Accordingly, we conclude that the trial court committed legal error in
finding that the insurance policy was not ambiguous and hold that the trial court
abused its discretion in denying the declaratory judgment.
CONCLUSION
For the foregoing reasons, we reverse the judgment of the trial court and
hold that coverage exists for loss or damage caused by “direct physical loss of or
damage to” the appellants’ insured premises as a result of contamination by
COVID-19.
REVERSED