NC Supreme Court Rules COVID Shutdowns Caused Physical Loss for Restaurants

In a significant departure from most rulings nationwide, the North Carolina Supreme Court ruled that COVID-19-related government shutdowns caused "direct physical loss" to restaurants under certain insurance policies. The December 13 decision in North State Deli vs. Cincinnati Insurance Co. marks only the second state high court ruling in favor of policyholders on this issue. The court found that Cincinnati Insurance’s policies lacked a virus exclusion and that the term ‘physical loss’ could reasonably include the loss of use and access caused by pandemic restrictions.

The court compared the situation to prior cases, such as a New Hampshire ruling that a home rendered unlivable by cat urine odor constituted a loss. The decision emphasized that property insurance should protect against threats making a space unusable for its insured purpose. Justice Anita Earls noted that Cincinnati’s policyholders could reasonably expect virus-related coverage, especially given the absence of an exclusion.

On the same day, the court upheld a ruling in a separate case, denying COVID-related claims for retailer Cato Corp. due to Zurich Insurance’s explicit virus exclusion. The split decisions highlight the critical role of policy language in these disputes. Cincinnati Insurance stated it respects the ruling but pointed to the many courts that have denied similar claims. The case now returns to the trial court for further proceedings.