Durham restaurant owners successfully sue their insurance company for COVID-19 losses
Two Durham restaurant owners have prevailed in an insurance lawsuit that could have implications throughout the nation’s struggling hospitality industry.
Giorgios Bakatsias and Matt Kelly, whose restaurant groups include some of the Triangle’s most prominent places to eat, sued their insurance provider, Cincinnati Insurance Company, earlier this year, arguing that North Carolina’s COVID-19 shutdown order should be covered by a businesses interruption claim.
Durham Superior Court Judge Orlando Hudson agreed, ruling earlier this month that the losses should be covered, a figure expected to be significant, as it includes months of operations for 16 different restaurants.
According to the University of Pennsylvania, which has tracked similar lawsuits since the start of the pandemic, Bakatsias and Kelly are the first owners to win out of more than 1,200 cases. Most decisions are still pending, but more than a dozen other cases have been dismissed.
“We’re thrilled with the outcome,” said Gagan Gupta, lead attorney for the restaurants in the lawsuit. “We believe Judge Hudson came out on the right side of the issue, that his decision was thoughtful and well-reasoned. ... Small businesses and restaurants are struggling all throughout our state. We hope and believe (insurance) is a really important piece of the puzzle as businesses seek to navigate the financial pressure of this moment.”
In response to a request for comment, company spokesperson Betsy Ertel said that Cincinnati Insurance plans to appeal the decision, arguing that the coverage is meant only for lost business due to property damage. Cincinnati Insurance Company has until Nov. 11 to appeal the ruling.
“We continue to believe that business interruption coverage under our property policy in this case does not apply because there was no structural alteration to the property,” Ertel said in a company statement. “The prevailing view by courts around the country has been that an economic loss alone doesn’t qualify as direct physical damage or loss to property, which is the trigger for business interruption coverage.”
An order to shut down
Early in the pandemic, North Carolina and other states shut down restaurant dining rooms as one of several measures taken to slow the spread of COVID-19. Judge Hudson’s ruling hinges on that government order, reasoning that Kelly and Bakatsias were unable to fully operate their restaurant properties, even now as the state has reopened dining rooms at 50% capacity.
Gupta declined to offer a general figure for what the claim is worth, saying that damages would be set after the appeals process, if the ruling is upheld.
“Whatever the damages end up being, they are significant,” Gupta said, pointing to hundreds of restaurant workers losing out on thousands of customers over the past seven months. “There are revenue losses, but also losses to the communities (the restaurants) touch.”
In April, as the long-term impacts of the COVID pandemic were beginning to come into focus, North Carolina Insurance Commissioner Mike Causey wrote a letter to business owners cautioning that business interruption claims were unlikely to be successful.
“Standard business interruption policies are not designed to provide coverage for viruses, diseases, or pandemic-related losses because of the magnitude of the potential losses,” Causey wrote in the April letter. “Insurability requires that loss events are due to chance and that potential losses are not too heavily concentrated or catastrophic. This is not possible if everyone in the risk pool is subject to the same loss at the same time.”
In the letter, Causey said that losses for businesses of 100 employees or less could be between $220 billion and $383 billion each month. He expressed sympathy for business owners and said his office would pursue legislative solutions for lost revenue.
“This type of loss could cripple the insurance industry causing many companies to fail,which would put the protection of homes, automobiles, and businesses at risk,” Causey wrote. “We can’t legally force insurers to cover a risk which they didn’t intend to cover and which, in some instances,was specifically excluded in the policy.”
As the first case to win this kind of judgment and as the coronavirus cases escalate nationwide, Kelly and Bakatsias’ win signals a path to the other side of the pandemic for a restaurant industry that’s endured a bleak year.
‘This definitely gave us some hope’
Kelly said he felt a range of emotions following Judge Hudson’s ruling, that he was happy and excited to have won, but that largely it represented hope for his restaurants.
“At first you definitely have hope for yourself, that you have some support so your businesses can make it out on the other side,” Kelly said. “As restaurant owners, we’re navigating businesses that probably aren’t going to be able to open under the current conditions. This definitely gave us some hope.”
Together, Bakatsias and Kelly own more than a dozen restaurants, including Mateo, Saint James Seafood, Kipos, Rosewater and others, many among the Triangle’s most acclaimed restaurants.
This is the second time in as many years that Kelly has filed a business interruption claim, the first stemming from the April 2019 Durham gas explosion, which closed his Saint James Seafood Restaurant for nearly a year. Saint James was open 39 days before it closed again due to the beginning of the COVID-19 pandemic.
“We want to make it through to the other side,” Kelly said. “What few jobs there are left in restaurants, we want to keep those jobs. A big part of my career and livelihood, along with so many restaurateurs, chefs, servers and cooks definitely dangle on this decision.”
Kelly and Bakatsias said the court’s decision will sway whether or not some restaurants are able to stay open, including their own. North Carolina restaurants have been able to open dining rooms at half capacity since May, though many have stuck with takeout service only. Kelly said those sales are a losing battle.
“Right now as we’re talking, people are having conversations about whether they’re going to open up their restaurant tomorrow or not,” Kelly said. “I hope it gives hope to other policy holders. Because, I’ll tell you, to-go does not pay managers’ salaries. To-go doesn’t cover rent. To-go does not work.”
