IN THE COURT OF APPEALS OF NORTH CAROLINA
2022-NCCOA-455
No. COA21-293
Filed 5 July 2022
Durham County, No. 20 CVS 02569
NORTH STATE DELI, LLC d/b/a LUCKY’S DELICATESSEN, MOTHERS & SONS, LLC d/b/a MOTHERS & SONS TRATTORIA, MATEO TAPAS, L.L.C. d/b/a MATEO BAR DE TAPAS, SAINT JAMES SHELLFISH LLC d/b/a SAINT JAMES SEAFOOD, CALAMARI ENTERPRISES, INC. d/b/a PARIZADE, BIN 54, LLC d/b/a BIN 54, ARYA, INC. d/b/a CITY KITCHEN and VILLAGE BURGER, GRASSHOPPER LLC d/b/a NASHER CAFE, VERDE CAFE INCORPORATED d/b/a LOCAL 22, FLOGA, INC. d/b/a KIPOS GREEK TAVERNA, KUZINA, LLC d/b/a GOLDEN FLEECE, VIN ROUGE, INC. d/b/a VIN ROUGE, KIPOS ROSE GARDEN CLUB, LLC d/b/a ROSEWATER, and GIRA SOLE, INC. d/b/a FARM TABLE and GATEHOUSE TAVERN, Plaintiffs,
v.
THE CINCINNATI INSURANCE COMPANY; THE CINCINNATI CASUALTY COMPANY; MORRIS INSURANCE AGENCY INC.; and DOES 1 THROUGH 20, INCLUSIVE, Defendants.
Appeal by Defendants from order entered 9 October 2020 by Judge Orlando F.
Hudson, Jr., in Durham County Superior Court. Heard in the Court of Appeals 9
March 2022.
The Paynter Law Firm, PLLC, by Gagan Gupta and Stuart M. Paynter, for Plaintiffs-Appellees.
Brooks, Pierce, McLendon, Humphrey & Leonard, LLP, by Kimberly M. Marston, Jim W. Phillips, Jr., and Gary S. Parsons, for Defendants-Appellants.
Robinson & Cole LLP, by Roger A. Peters, II, for amici curiae American Property Casualty Insurance Association and National Association of Mutual Insurance Companies. NORTH STATE DELI, LLC V. THE CINCINNATI INSURANCE CO.
Opinion of the Court
Deputy Solicitor General Sarah G. Boyce for amicus curiae The State of North Carolina.
Kimberly M. Rehberg for amici curiae City of Charlotte, City of Durham, and Former State Commissioner of Insurance George Wayne Goodwin.
Robinson, Bradshaw & Hinson, P.A., by Richard C. Worf, Jr., and Covington & Burling LLP, by Allison Hawkins, for amicus curiae United Policyholders and National Independent Venue Association.
Crabtree Carpenter, PLLC, by Guy W. Crabtree, and Thompson Hammerman Davis LLP, by Gary S. Thompson and Kristin C. Davis, for amicus curiae North Carolina Restaurant & Lodging Association and Restaurant Law Center.
DILLON, Judge.
¶1 Defendants appeal from an Order Granting Plaintiffs’ Rule 56 Motion for
Partial Summary Judgment. In this case, we must interpret provisions of Plaintiffs’
commercial insurance policies (the “Policies”). Because we conclude the unambiguous
terms of the Policies did not provide the coverage Plaintiffs sought, we reverse the
ruling below.
I. Background
¶2 Plaintiffs are sixteen (16) North Carolina restaurants insured by Defendants
under the Policies.1 The issue in this case is whether Plaintiffs are entitled to
insurance coverage under their Policies for the business losses they incurred due to
1 Each Plaintiff’s policy has identical relevant provisions. NORTH STATE DELI, LLC V. THE CINCINNATI INSURANCE CO.
the COVID-related shutdowns.
¶3 The Policies each contain a provision providing for the loss of the restaurants’
business income (“Business Income Provision”):
We will pay for the actual loss of “Business Income” . . . you sustain due to the necessary “suspension” of your “operations” during the “period of restoration”. The “suspension” must be caused by direct “loss” to property at a “premises” caused by or resulting from any Covered Cause of Loss.
¶4 The Policies provide that “Loss” means “accidental physical loss or accidental
physical damage.”
¶5 In March of 2020, state and local government orders were issued in response
to the COVID-19 pandemic (the “Governmental Orders”). The Governmental Orders
restricted restaurant operations to carry-out/take-out and delivery operations only.2
Following these orders, fourteen (14) of sixteen (16) Plaintiffs closed their restaurants
completely. Two restaurants continued to operate under the Governmental Orders’
limitations until fully closing in May 2020. Plaintiffs decided to close their
restaurants due to the financial repercussions of the Governmental Orders.
¶6 In May 2020, Plaintiffs sought coverage from Defendants under their Policies
for loss of income and expenses from their reduced or stopped business operations,
See North Carolina Executive Orders No. 116-18, 120-21, 131; see also Second 2
Amendment to Declaration of State of Emergency in the City of Durham (Mar. 25, 2020). NORTH STATE DELI, LLC V. THE CINCINNATI INSURANCE CO.
filing a motion for partial summary judgment. Defendants disputed coverage and
filed a Rule 12(b)(6) motion to dismiss.
¶7 After hearing argument on the motions, the trial court entered judgment for
Plaintiffs on their First Claim for Relief, which sought a declaratory judgment that
“the Policies cover Business Income and Extra Expense . . . resulting from
governmental action that forced Plaintiffs to suspend operations.” Plaintiffs’ First
Claim for Relief did not seek damages or other relief. The trial court concluded that
“the Policies provide coverage for Business Income and Extra Expenses for Plaintiffs’
loss of use and access to covered property mandated by the Governmental Orders as
a matter of law.” Defendants appealed from the trial court’s Order Granting
Plaintiffs’ Rule 56 Motion for Partial Summary Judgment (the “Order”).
II. Standard of Review
¶8 “In North Carolina, determining the meaning of language in an insurance
policy presents a question of law for the Court.” Accardi v. Hartford Ins. Co., 373
N.C. 292, 295, 838 S.E.2d 454, 456 (2020). We review these questions of law de novo
on appeal. Register v. White, 358 N.C. 691, 693, 599 S.E.2d 549, 552 (2004).
III. Analysis
¶9 “When interpreting an insurance policy, courts apply general contract
interpretation rules. As in other contracts, the objective of construction of terms in
an insurance policy is to arrive at the insurance coverage intended by the parties NORTH STATE DELI, LLC V. THE CINCINNATI INSURANCE CO.
when the policy was issued.” Accardi, 373 N.C. at 295, 838 S.E.2d at 456 (internal
quotation marks and citation omitted). A court should construe a policy in accordance
with its terms, but ambiguous terms are construed against the insurer and in favor
of the policyholder. Id. at 295, 838 S.E.2d at 456. Ambiguity exists when a provision
is “fairly and reasonably susceptible to either of the constructions for which the
parties contend.” Wachovia Bank & Tr. Co. v. Westchester Fire Ins. Co., 276 N.C. 348,
354, 172 S.E.2d 518, 522 (1970).
¶ 10 A term should be given its defined meaning if provided in the policy. Id. at
354, 172 S.E.2d at 522. If a term is not defined within the policy, the court “must
define the term in a manner that is consistent with the context in which the term is
used, and the meaning accorded to it in ordinary speech.” Accardi, 373 N.C. at 295,
838 S.E.2d at 457. “Care will be taken to give the various clauses of the policy an
interpretation consistent with the main purpose of the contract[.]” Woodell v. Aetna
Ins. Co., 214 N.C. 496, 499, 199 S.E. 719, 721 (1938).
¶ 11 Here, Defendants argue that the trial court erred in concluding that the
Governmental Orders temporarily restricting the scope of their restaurant operations
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IN THE COURT OF APPEALS OF NORTH CAROLINA
2022-NCCOA-455
No. COA21-293
Filed 5 July 2022
Durham County, No. 20 CVS 02569
NORTH STATE DELI, LLC d/b/a LUCKY’S DELICATESSEN, MOTHERS & SONS, LLC d/b/a MOTHERS & SONS TRATTORIA, MATEO TAPAS, L.L.C. d/b/a MATEO BAR DE TAPAS, SAINT JAMES SHELLFISH LLC d/b/a SAINT JAMES SEAFOOD, CALAMARI ENTERPRISES, INC. d/b/a PARIZADE, BIN 54, LLC d/b/a BIN 54, ARYA, INC. d/b/a CITY KITCHEN and VILLAGE BURGER, GRASSHOPPER LLC d/b/a NASHER CAFE, VERDE CAFE INCORPORATED d/b/a LOCAL 22, FLOGA, INC. d/b/a KIPOS GREEK TAVERNA, KUZINA, LLC d/b/a GOLDEN FLEECE, VIN ROUGE, INC. d/b/a VIN ROUGE, KIPOS ROSE GARDEN CLUB, LLC d/b/a ROSEWATER, and GIRA SOLE, INC. d/b/a FARM TABLE and GATEHOUSE TAVERN, Plaintiffs,
v.
THE CINCINNATI INSURANCE COMPANY; THE CINCINNATI CASUALTY COMPANY; MORRIS INSURANCE AGENCY INC.; and DOES 1 THROUGH 20, INCLUSIVE, Defendants.
Appeal by Defendants from order entered 9 October 2020 by Judge Orlando F.
Hudson, Jr., in Durham County Superior Court. Heard in the Court of Appeals 9
March 2022.
The Paynter Law Firm, PLLC, by Gagan Gupta and Stuart M. Paynter, for Plaintiffs-Appellees.
Brooks, Pierce, McLendon, Humphrey & Leonard, LLP, by Kimberly M. Marston, Jim W. Phillips, Jr., and Gary S. Parsons, for Defendants-Appellants.
Robinson & Cole LLP, by Roger A. Peters, II, for amici curiae American Property Casualty Insurance Association and National Association of Mutual Insurance Companies. NORTH STATE DELI, LLC V. THE CINCINNATI INSURANCE CO.
Opinion of the Court
Deputy Solicitor General Sarah G. Boyce for amicus curiae The State of North Carolina.
Kimberly M. Rehberg for amici curiae City of Charlotte, City of Durham, and Former State Commissioner of Insurance George Wayne Goodwin.
Robinson, Bradshaw & Hinson, P.A., by Richard C. Worf, Jr., and Covington & Burling LLP, by Allison Hawkins, for amicus curiae United Policyholders and National Independent Venue Association.
Crabtree Carpenter, PLLC, by Guy W. Crabtree, and Thompson Hammerman Davis LLP, by Gary S. Thompson and Kristin C. Davis, for amicus curiae North Carolina Restaurant & Lodging Association and Restaurant Law Center.
DILLON, Judge.
¶1 Defendants appeal from an Order Granting Plaintiffs’ Rule 56 Motion for
Partial Summary Judgment. In this case, we must interpret provisions of Plaintiffs’
commercial insurance policies (the “Policies”). Because we conclude the unambiguous
terms of the Policies did not provide the coverage Plaintiffs sought, we reverse the
ruling below.
I. Background
¶2 Plaintiffs are sixteen (16) North Carolina restaurants insured by Defendants
under the Policies.1 The issue in this case is whether Plaintiffs are entitled to
insurance coverage under their Policies for the business losses they incurred due to
1 Each Plaintiff’s policy has identical relevant provisions. NORTH STATE DELI, LLC V. THE CINCINNATI INSURANCE CO.
the COVID-related shutdowns.
¶3 The Policies each contain a provision providing for the loss of the restaurants’
business income (“Business Income Provision”):
We will pay for the actual loss of “Business Income” . . . you sustain due to the necessary “suspension” of your “operations” during the “period of restoration”. The “suspension” must be caused by direct “loss” to property at a “premises” caused by or resulting from any Covered Cause of Loss.
¶4 The Policies provide that “Loss” means “accidental physical loss or accidental
physical damage.”
¶5 In March of 2020, state and local government orders were issued in response
to the COVID-19 pandemic (the “Governmental Orders”). The Governmental Orders
restricted restaurant operations to carry-out/take-out and delivery operations only.2
Following these orders, fourteen (14) of sixteen (16) Plaintiffs closed their restaurants
completely. Two restaurants continued to operate under the Governmental Orders’
limitations until fully closing in May 2020. Plaintiffs decided to close their
restaurants due to the financial repercussions of the Governmental Orders.
¶6 In May 2020, Plaintiffs sought coverage from Defendants under their Policies
for loss of income and expenses from their reduced or stopped business operations,
See North Carolina Executive Orders No. 116-18, 120-21, 131; see also Second 2
Amendment to Declaration of State of Emergency in the City of Durham (Mar. 25, 2020). NORTH STATE DELI, LLC V. THE CINCINNATI INSURANCE CO.
filing a motion for partial summary judgment. Defendants disputed coverage and
filed a Rule 12(b)(6) motion to dismiss.
¶7 After hearing argument on the motions, the trial court entered judgment for
Plaintiffs on their First Claim for Relief, which sought a declaratory judgment that
“the Policies cover Business Income and Extra Expense . . . resulting from
governmental action that forced Plaintiffs to suspend operations.” Plaintiffs’ First
Claim for Relief did not seek damages or other relief. The trial court concluded that
“the Policies provide coverage for Business Income and Extra Expenses for Plaintiffs’
loss of use and access to covered property mandated by the Governmental Orders as
a matter of law.” Defendants appealed from the trial court’s Order Granting
Plaintiffs’ Rule 56 Motion for Partial Summary Judgment (the “Order”).
II. Standard of Review
¶8 “In North Carolina, determining the meaning of language in an insurance
policy presents a question of law for the Court.” Accardi v. Hartford Ins. Co., 373
N.C. 292, 295, 838 S.E.2d 454, 456 (2020). We review these questions of law de novo
on appeal. Register v. White, 358 N.C. 691, 693, 599 S.E.2d 549, 552 (2004).
III. Analysis
¶9 “When interpreting an insurance policy, courts apply general contract
interpretation rules. As in other contracts, the objective of construction of terms in
an insurance policy is to arrive at the insurance coverage intended by the parties NORTH STATE DELI, LLC V. THE CINCINNATI INSURANCE CO.
when the policy was issued.” Accardi, 373 N.C. at 295, 838 S.E.2d at 456 (internal
quotation marks and citation omitted). A court should construe a policy in accordance
with its terms, but ambiguous terms are construed against the insurer and in favor
of the policyholder. Id. at 295, 838 S.E.2d at 456. Ambiguity exists when a provision
is “fairly and reasonably susceptible to either of the constructions for which the
parties contend.” Wachovia Bank & Tr. Co. v. Westchester Fire Ins. Co., 276 N.C. 348,
354, 172 S.E.2d 518, 522 (1970).
¶ 10 A term should be given its defined meaning if provided in the policy. Id. at
354, 172 S.E.2d at 522. If a term is not defined within the policy, the court “must
define the term in a manner that is consistent with the context in which the term is
used, and the meaning accorded to it in ordinary speech.” Accardi, 373 N.C. at 295,
838 S.E.2d at 457. “Care will be taken to give the various clauses of the policy an
interpretation consistent with the main purpose of the contract[.]” Woodell v. Aetna
Ins. Co., 214 N.C. 496, 499, 199 S.E. 719, 721 (1938).
¶ 11 Here, Defendants argue that the trial court erred in concluding that the
Governmental Orders temporarily restricting the scope of their restaurant operations
constituted direct physical loss or damage to the property. We agree for the reasoning
below. Because this issue is dispositive in this case, we decline to address Defendants’
alternative argument.
¶ 12 We considered a similar issue in Harry’s Cadillac-Pontiac-GMC Truck Co. v. NORTH STATE DELI, LLC V. THE CINCINNATI INSURANCE CO.
Motors Ins. Co., 126 N.C. App. 698, 486 S.E.2d 249 (1997). That case involved
potential customers who were unable to access the insured location due to a
snowstorm blocking the entrance. Id. at 699, 486 S.E.2d at 250. Our Court concluded
there to be no coverage under a business interruption clause when the insured
property was not “caused by direct physical loss of or damage to property at the
premises” as required by the policy. Id. at 700, 486 S.E.2d at 251.
¶ 13 Further, recent cases from the Fourth Circuit have agreed that similar or
identical policy provisions do not provide coverage for business interruption losses
due to COVID-19 governmental orders because there is no direct physical loss or
damage to the insured property. See, e.g., Fs Food Group LLC v. Cincinnati Ins. Co.,
2022 US Dist. LEXIS 22598 (Feb. 8, 2022); Summit Hosp. Grp., Ltd. v. Cincinnati
Ins. Co., 2021 U.S. Dist. LEXIS 40613 (E.D.N.C. Mar. 4, 2021). These cases involve
the application of North Carolina law, and we find them persuasive.
¶ 14 We agree with these courts that the relevant provisions of the Policies are
unambiguous. Plaintiffs did not allege that their loss resulted from physical harm to
their property, but that the Governmental Orders resulted in loss of business.
Plaintiffs’ desired definition of “physical loss” as a general “loss of use” is not
supported by our caselaw or the unambiguous language in the Policies. According to
the plain language of the Policies, only direct, accidental, physical loss or damage to
the property is covered. Therefore, the trial court erred in granting partial summary NORTH STATE DELI, LLC V. THE CINCINNATI INSURANCE CO.
judgment to Plaintiffs on their First Claim for Relief.
III. Conclusion
¶ 15 We reverse the trial court’s grant of partial summary judgment to Plaintiffs on
their First Claim for Relief and direct the trial court to enter summary judgment in
favor of Defendants on this claim.
REVERSED AND REMANDED.
Judges HAMPSON and WOOD concur.