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Insurer in Full: Legal sanity restored in Louisiana…

The owners of the New Orleans restaurant Oceana Grill are not coy when it comes to firing off suits...

In 2018, Cajun Conti LLC sued Gordon Ramsay over a clip which saw the TV chef wretch in a bucket after smelling their prawns on his Kitchen Nightmares programme.

But it was the firm’s lawsuit in March 2020 against a number of insurers, including Lloyd’s syndicates, which was to become a cause célèbre in US Covid litigation.

Two days after restrictions were first imposed on New Orleans restaurants in a bid to contain the pandemic, the owners of the French Quarter restaurant asked a Louisiana court to issue a declaratory judgment that its insurers would be liable for the likely business interruption (BI) losses that would arise.

Advising them was John Houghtaling, a celebrity plaintiff lawyer who has specialised in taking on insurers since the days of Hurricane Katrina.

Houghtaling was a foe to take seriously. Media savvy and well-connected, the Louisiana attorney has built one of the world’s finest collections of Lamborghinis from the success of his legal and business deals.  

 When it was confirmed a number of leading US chefs – including Thomas Keller and Wolfgang Puck – had spoken to President Trump about their fears over insurance, few were surprised to discover Houghtaling was involved behind the scenes.

But Cajun Conti – like restaurant owners across the country – had a problem. The standard ISO wordings used in property coverage restrict BI cover to “direct physical damage”. This was a long way from the flabby pandemic wordings seen in Europe. Common sense would suggest a virus could do no such thing as inflict physical damage.

Cajun Conti and Houghtaling were undeterred.

Their suit, Cajun Conti LLC vs Certain Underwriters at Lloyd's, became the first BI insurance case tied to Covid-19 and state authorities restricting travel and dine-in eating. It was also the first to reach trial status, making it a test case for the ~1,500 Covid BI lawsuits filed in the US against insurers.

Cajun Conti’s insurers were nervous. Louisiana is often named as one of the country’s “judicious hell-holes” where toxic or frivolous litigation proliferates.

In this particular case, there were even rumours circulating that Houghtaling’s law firm’s close ties to local politicians may even have extended to providing advice on the specific wording of the pandemic order (the Louisiana state court refused an application by insurers to subpoena him on the issue).

Their fears – in the first instance at least – were unnecessary. In 2021, a Louisiana state trial court found the pandemic did not cause any “direct physical loss of or damage to” Oceana Grill.

It was a reasoning repeated in state courts up and down the country during the pandemic years. Indeed, it was a rare subversion of the norm which typically sees US courtrooms as more policyholder-friendly than those overseas. This time round, claimants were finding greater success in common law and European jurisdictions where there was greater ambiguity in the policy language than they were in the US.

But Cajun Conti and Houghtaling do not give up as easily as the Oceana Grill prawns. The restaurant appealed and – in a fractured and controversial ruling last year – the Louisiana Fourth Circuit Court of Appeals reversed the decision and sided with the appellate.

The majority 5-2 opinion concluded the wording “direct physical loss of or damage to” an insured property was ambiguous in the context of the specific facts of the case, relying on prior Louisiana decisions in Chinese drywall and lead contamination matters.

The judgment further determined that the definition of “suspension” included a “slowdown” of operations and therefore covered the reduced capacity of the restaurant.

Stretching the interpretation of the policy wording yet further, the opinion even ruled a “cycle of cleaning and decontamination” can be a reasonable interpretation of “repair” under the period of restoration provision.

It was, in other words, a remarkably generous interpretation by the three judges. It also contrasted starkly with appellate courts elsewhere. Other than a peculiar ruling in Vermont, state appeal courts in 18 other states have determined the virus cannot cause physical loss or damage (or not in the cases before them).

Left alone, it would stand as a legally valid – albeit dubiously reasoned – extension of the BI coverage available under standardised ISO policy wordings. Louisiana insurers would be confronted with a barrage of new claims and, not for the first time, carriers would likely be questioning the strategic commitment to a state with an unpredictable legal system.

But last week sanity was restored with the Louisiana Supreme Court reversing the decision once again.

“We find the plain, ordinary and generally prevailing meaning of 'direct physical loss of or damage to property' requires the insured’s property sustain a physical, meaning tangible or corporeal, loss or damage,” the court ruled.

The opinion made the common sense observation that if the plaintiff claims the virus infects and damages property then why was Cajun Conti keeping Oceana Grill open?

The state supreme courts only hear appeals on a small number of appellate decisions. It was good news for Louisiana insurers and the state economy itself that they heard this one. Left alone, the Cajun Conti decision would have made it more challenging for businesses to obtain cover on reasonable terms as the state would be marked out (again) as an insurance law pariah.

At this point, The Insurer should acknowledge there were markets – not least in the UK – where insurers provided ambiguous and confused coverage terms and responded inadequately when the pandemic BI claims came in. They deserved all the heavy criticism that came their way.

But a state appeal court decision claiming a respiratory disease causes “physical damage” was bad law that undermines the sensible meaning of words.

In Pegasus Rising, James Lee Burke’s cynical detective Dave Robicheaux describes Louisiana as a “fresh-air mental asylum”.

Last week, legal sanity was restored by the Louisiana Supreme Court…


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