No Physical Loss or Damage

Carrols Restaurant Grp. Inc. v. American Guarantee and Liability Insurance Co., No. 815430/2021 (N.Y. Sup. Ct., Erie Cnty. Nov. 4, 2022)

In this COVID-19 litigation, the New York Supreme Court, Erie County, granted MCWG client American Guarantee and Liability Insurance Company’s motion to dismiss on the grounds that the insured, Carrols Restaurant Group, failed to demonstrate any direct physical loss or damage to its properties. The insured, which operated over 1,000 Burger King and Popeye’s restaurants in 23 states, alleged that, as a result of the COVID-19 pandemic, the restaurants closed their in-restaurant dining rooms, reduced seating capacity, reduced operating hours, and closed playgrounds. The insured also alleged that the restaurants installed plexiglass barriers, hand sanitizer stations, and social distancing signage at the insured properties.The court, relying on Consolidated Restaurant Operations v. Westport Insurance Corp., 205 A.D.3d 76 (1st Dept. 2022), held that “COVID-19’s presence in the air and on surfaces does not constitute a direct physical loss or damage where the plaintiff ‘fails to identify in either its pleading or the proposed amended complaint a single item that it had to replace, anything that changed, or that was actually damaged at any of its properties.'” The court also noted that the restaurants did not claim that they were physically stopped from performing business operations at any of their locations, for they were still able to serve food through takeout, drive-throughs, and delivery services. The court also held that civil authority coverage was not triggered because the restaurant group did not sufficiently allege “an alteration in the tangible condition of properties close to its restaurants.”The case is currently on appeal in the Fourth Department.Philip Silverberg and Hilary Henkind represented American Guarantee and Liability Insurance Co.

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