Opinion
2021-CA-0343
08-08-2022
CAJUN CONTI LLC, CAJUN CUISINE 1 LLC, AND CAJUN CUISINE LLC D/B/A OCEANA GRILL v. CERTAIN UNDERWRITERS AT LLOYD'S, LONDON AND GOVERNOR JOHN B. EDWARDS IN HIS OFFICIAL CAPACITY AS GOVERNOR OF THE STATE OF LOUISIANA, AND THE STATE OF LOUISIANA
John W. Houghtaling, II GAUTHIER, HOUGHTALING & WILLIAMS, L.L.C. Jennifer Perez GAUTHIER MURPHY & HOUGHTALING, L.L.C. Daniel Ernest Davillier DAVILLIER LAW GROUP Roderick Rico Alvendia ALVENDIA KELLY & DEMAREST, L.L.C. Jennifer L. Kuechmann ALVENDIA, KELLY & DEMAREST, L.L.C. James M. Williams CHEHARDY SHERMAN WILLIAMS MURRAY RECILE STAKELUM & HAYES, LLP Phillip J. Laborde CHEHARDY, SHERMAN, WILLIAMS Matthew A. Sherman CHEHARDY SHERMAN WILLIAMS MURRAY RECILE STAKELUM & HAYES, L.L.P. Bernard Louis Charbonnet, Jr. LAW OFFICES OF BERNARD L. CHARBONNET, JR. Desiree Mary Charbonnet Law Office Desiree M. Charbonnet LLC Anthony David Irpino IRPINO LAW FIRM Richard P. Lewis REED SMITH, LLP Three Logan Square John N. Ellison REED SMITH, LLP COUNSEL FOR PLAINTIFF/APPELLANT Kyle D. Schonekas SCHONEKAS EVANS McGOEY & McEACHIN, L.L.C. Joelle Flannigan Evans SCHONEKAS EVANS McGOEY & McEACHIN, L.L.C. Heather S. Duplantis PHELPS DUNBAR LLP Thomas H. Peyton PHELPS DUNBAR, LLP Allen C. Miller, Sr. PHELPS DUNBAR LLP Virginia Y. Dodd PHELPS DUNBAR LLP Kevin W. Welsh PHELPS DUNBAR LLP Martin A. Stern ADAMS AND REESE LLP Ann Schell ADAMS AND REESE LLP Sara C. Valentine ADAMS AND REESE LLP Alexandra Roselli Lamb ADAMS AND REESE, LLP COUNSEL FOR DEFENDANT/APPELLEE
ON APPLICATION FOR REHEARING
APPEAL FROM CIVIL DISTRICT COURT, ORLEANS PARISH NO. 2020-02558, DIVISION "M" Honorable Paulette R. Irons, Judge.
John W. Houghtaling, II GAUTHIER, HOUGHTALING & WILLIAMS, L.L.C.
Jennifer Perez GAUTHIER MURPHY & HOUGHTALING, L.L.C.
Daniel Ernest Davillier DAVILLIER LAW GROUP
Roderick Rico Alvendia ALVENDIA KELLY & DEMAREST, L.L.C.
Jennifer L. Kuechmann ALVENDIA, KELLY & DEMAREST, L.L.C.
James M. Williams CHEHARDY SHERMAN WILLIAMS MURRAY RECILE STAKELUM & HAYES, LLP
Phillip J. Laborde CHEHARDY, SHERMAN, WILLIAMS
Matthew A. Sherman CHEHARDY SHERMAN WILLIAMS MURRAY RECILE STAKELUM & HAYES, L.L.P.
Bernard Louis Charbonnet, Jr. LAW OFFICES OF BERNARD L. CHARBONNET, JR.
Desiree Mary Charbonnet Law Office Desiree M. Charbonnet LLC
Anthony David Irpino IRPINO LAW FIRM
Richard P. Lewis REED SMITH, LLP Three Logan Square
John N. Ellison REED SMITH, LLP COUNSEL FOR PLAINTIFF/APPELLANT
Kyle D. Schonekas SCHONEKAS EVANS McGOEY & McEACHIN, L.L.C.
Joelle Flannigan Evans SCHONEKAS EVANS McGOEY & McEACHIN, L.L.C.
Heather S. Duplantis PHELPS DUNBAR LLP
Thomas H. Peyton PHELPS DUNBAR, LLP
Allen C. Miller, Sr. PHELPS DUNBAR LLP
Virginia Y. Dodd PHELPS DUNBAR LLP
Kevin W. Welsh PHELPS DUNBAR LLP
Martin A. Stern ADAMS AND REESE LLP
Ann Schell ADAMS AND REESE LLP
Sara C. Valentine ADAMS AND REESE LLP
Alexandra Roselli Lamb ADAMS AND REESE, LLP
COUNSEL FOR DEFENDANT/APPELLEE
Court composed of Chief Judge Terri F. Love, Judge Roland L. Belsome, Judge Joy Cossich Lobrano, Judge Sandra Cabrina Jenkins, Judge Pro Tempore James F. McKay, III.
BELSOME, J. DISSENTS
LOBRANO, J., CONCURS AND ASSIGNS REASONS JENKINS, J., CONCURS IN THE RESULT MCKAY, J., PRO TEMPORE, CONCURS IN RESULT
Terri F. Love, Chief Judge
This matter is before the Court on an application and incorporated brief for rehearing or, alternatively, rehearing en banc filed by the appellee, Certain Underwriters at Lloyd's, London (Lloyd's). Upon review, we grant rehearing for clarification only. We find that the application for rehearing raises no new issues for consideration and that the Court did not err in its reversal of the trial court's judgment. Further, rehearing en banc is denied. The Court's opinion of June 15, 2022 remains intact.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Cajun Conti LLC, Cajun Cuisine I LLC, and Cajun Cuisine LLC d/b/a Oceana Grill (hereinafter collectively "Oceana") is the owner and operator of Oceana Grill, a large restaurant in the French Quarter of New Orleans. During the COVID-19 pandemic, Oceana suspended operations to comply with local regulations. Oceana eventually reopened, but with reduced capacity to curtail the spread of COVID-19 particles on the premises. In addition to reducing the restaurant's capacity, Oceana undertook decontamination efforts to clean surfaces of the viral particles.
Seeking guidance on the availability for insurance coverage for its closures and reductions in capacity, Oceana filed a petition in civil district court for declaratory judgment regarding an all-risks insurance policy they purchased from Lloyd's. In the petition, Oceana asked the court to declare that the all-risks policy provided coverage for any loss or damage caused by direct physical loss of or damage to their insured premises as a result of continuous contamination by COVID-19. Lloyd's responded to the petition with arguments that contamination from COVID-19 did not constitute "direct physical loss or damage" and filed a motion for summary judgment.
The trial court denied the motion for summary judgment and proceeded to a bench trial. Following the trial, the trial court denied Oceana's petition for declaratory judgment. Oceana appealed the trial court's denial of the petition for declaratory judgment. We found the insurance policy to be ambiguous and capable of more than one reasonable interpretation in regards to the coverage of lost business income. We held that this ambiguity necessitated an interpretation of the contract in favor of the appellant, Oceana, and reversed the trial court's judgment. Lloyd's has now filed this application and incorporated brief for rehearing of our judgment or, alternatively, rehearing en banc. The appellant filed a reply brief to the appellee's application and the appellee subsequently filed a supplemental brief in support of its application.
DISCUSSION
Standard of Review
An application for rehearing is considered when a court has "(A) [g]ranted a writ application on the merits; (B) [d]ismissed an appeal; or (C) [r]uled on the merits of an appeal." Uniform Rules, Courts of Appeal, Rule 2-18.7.
This Court has summarized the standard of review for legal errors to hold that:
Where an error of law taints the record, we are not bound to affirm the judgment of the lower court. Id. at 844. Furthermore, when a trial court makes one or more prejudicial legal errors which interdict the fact-finding process, the manifest error standard is no longer applicable, and the appellate court is obliged to make its own independent, de novo review of the record if such is complete. Evans v. Lungrin, 97-0541, 97-0577, p. 7 (La.2/6/98), 708 So.2d 731, 735; McLean v. Hunter, 495 So.2d 1298, 1303-04 (La.1986).In re Succession of Sporl, 04-1373, p. 5 (La.App. 4 Cir. 4/6/05), 900 So.2d 1054, 1058.
The presence of ambiguity in an insurance contract is a question of law. Cadwallader v. Allstate Ins. Co., 02-1637, p. 4 (La. 6/27/03), 848 So.2d 577, 580 (citing Louisiana Ins. Guar. Ass'n v. Interstate Fire & Cas. Co., 93-0911, (La. 1/14/94), 630 So.2d 759, 764). "Words and phrases used in an insurance policy are to be construed using their plain, ordinary and generally prevailing meaning, unless the words have acquired a technical meaning." Cadwallader, 02-1637, p. 3, 848 So.2d at 580 (citing La. C.C. art. 2047; Peterson v. Schimek, 98-1712, p. 5 (La. 3/2/99), 729 So.2d 1024, 1028-29; Carbon v. Allstate Ins. Co., 97-3085, p. 4 (La. 10/20/98), 719 So.2d 437, 440-41; Reynolds, 634 So.2d at 1183). If a court finds ambiguity in an insurance contract, the ambiguous provision is "generally construed against the insurer and in favor of coverage. Cadwallader, 02-1637, p. 4, 848 So.2d at 580 (citing La. C.C. art. 2056; Carrier v. Reliance Ins. Co., 99-2573, p. 12 (La. 4/11/00), 759 So.2d 37, 43; Louisiana Ins., 93-0911, 630 So.2d at 764).
Application for Rehearing or, Alternatively, Rehearing En Banc
In its application for rehearing, the appellee presents three main arguments. First, the appellee argues that Widder v. Louisiana Citizens Prop. Ins. Corp., 11-0196, (La.App. 4 Cir. 8/10/11), 82 So.3d 294, writ denied, 11-2336 (La. 12/02/11), 76 So.3d 1179, does not support our reversal of the trial court's judgment. Second, the appellee argues that the Court erred in finding the all-risk insurance policy to be ambiguous. Third, the appellee avers that the Court's opinion creates a split between the Louisiana Court of Appeal, Fourth Circuit, and the United States Fifth Circuit.
1. Widder v. Louisiana Citizens Prop. Ins. Corp.
In Widder, this Court held that that physical damage was not necessary to trigger coverage in an insurance policy because the insured property was "rendered unusable or uninhabitable." Widder, 11-0196, p. 4, 82 So.3d at 296 (citing In re Chinese Manufactured Drywall Products Liability Litigation, 759 F.Supp.2d 822 (E.D. La. 2010); Ross v. C. Adams Construction & Design, 10-852 (La.App. 5 Cir. 6/14/11), 70 So.3d 949). The appellee asserted that Widder's holding does not apply to the factual scenario presented in this matter, as the appellants continued to operate the premises and the property was not uninhabitable or unusable. The appellee has renewed this argument in their application for rehearing.
An examination of the insurance policy at issue in the case sub judice reveals that the policy provides coverage for the insured's "period of restoration" following "direct physical loss of or damage to the property" due to a suspension of business operations. "Suspension" is defined in the policy as a cessation or a slowdown of business activities (emphasis added). In defining "suspension" to include a slowdown of business activities, this policy provision does not require that the property be completely uninhabitable or unusable in order for coverage to prevail.
2. Ambiguity
The contract language defining suspension as a slowdown of business activities, in conjunction with the requirement for "direct physical loss of or damage to the property," gives rise to ambiguity in the policy because it creates two equally reasonable interpretations of the policy provision. The appellee's position, that the insured must fully lose the use of the property, is one reasonable interpretation. However, another equally reasonable interpretation is proffered by the appellants, who contend that a covered loss is the inability to fully utilize the property.
The appellee charges that the Court jumped over the threshold requirement that, whatever the nature of the suspension, it must always be caused by a "direct physical loss of or damage to property" at the insured premises" (emphasis added). The appellee argues that "physical" has consistently been interpreted to mean tangible, and that the Court did not apply that settled interpretation. This is inaccurate. The Court acknowledged the policy language requiring "physical" loss or damage and noted that COVID-19 particles have a tangible, corporeal form, despite not being immediately visible. The Court also observed that in Widder, the Fourth Circuit joined a line of cases extending coverage to losses sustained from the propagation of harmful agents with a tangible physical form but which, like COVID-19 particles, are not discernible with the naked human eye.
The appellee states that the Court also erred in its interpretation of the "period of restoration." This provision extends coverage to the period of time commencing seventy-two hours after the loss or damage, until the property is "repaired or replaced," or business is resumed at a new, permanent location. The appellee argues that "[w]e all know what it is to repair" and that the Court failed to apply the ordinary, prevailing meaning of "repair," as required by law. In defining repair as "to restore by replacing a part or putting together what is torn or broken" and "to restore to a sound or healthy state," the Court relied upon an established dictionary publisher and referenced only the primary definitions provided.
Repair Definition, MERRIAM-WEBSTER, https://www.merriamwebster.com/dictionary/repair (last visited July 20, 2022).
The appellee further argues that the Court had no sound basis to reverse the trial court on grounds that the policy language is ambiguous. The appellee states that the trial addressed whether the suspension of operations was caused by direct physical loss of or damage to the property and implicitly made a factual finding that the suspension was not caused by physical damage. The appellee argues that this procedural posture renders our legal finding of ambiguity improper.
In the initial appeal, the appellants offered two assignments of error. The first assignment of error pertained to the trial court's factual finding that the premises did not sustain a direct physical loss or damage under the terms of the contract as a result of continuous contamination by the COVID-19 coronavirus. The second assignment of error addressed the trial court's legal conclusion that the commercial property policy that the appellee drafted and sold to Oceana was not ambiguous. The assignments of error were offered in the alternative. The Court focused on the legal question of ambiguity because any factual findings by the trial court regarding the existence of "physical loss of or damage to" the property would have been premised on an understanding and interpretation of these relevant contract terms.
3. Conflict within the Circuit and with the United States Fifth Circuit
The appellee's third argument posits that the Court should grant rehearing en banc because there is a conflict within the Circuit regarding the applicability of Widder.
A party may apply for a rehearing en banc in cases of an inter-circuit conflict. See Melerine v. Boba, 95-0197, p. 1 (La.App. 4 Cir. 10/12/95), 664 So.2d 148, 151. In the present case, two members of the five-judge panel in the Court's underlying opinion dissented on the applicability of Widder to the facts at issue in this matter. The appellee fails to cite to any legal authority requiring en banc review when a minority of judges on a panel dissent about the applicability of a prior case. The appellee emphasizes that one dissenting panel member was the original author of the prior case, yet provides no supporting authority to demonstrate that rehearing en banc is required, or even encouraged, under these circumstances.
Last, the appellee states that rehearing en banc is necessary because the Court's opinion conflicts with a federal case, Muriel's New Orleans, LLC v. State Farm Fire & Cas. Co., 2021 WL 4290724 (E.D. La. Sept. 21, 2021). In Muriel's New Orleans, LLC, the federal district court issued an order finding that the insured "did not sufficiently alleged direct physical loss to the covered property." Muriel's New Orleans, LLC, 2021 WL 4290724, *8. However, in that case, the restaurant explicitly pled that it "never found any evidence of the COVID-19 virus on its property." Id. This is distinguishable from the case at bar, where the appellants introduced evidence to show that COVID-19 particles were on its property. Furthermore, federal district court decisions are not binding authority upon the state courts of Louisiana, although they may be reviewed as persuasive authority. State v. King, 19-01332, p. 5 (La. 4/3/20), __ So.3d __, __, 2020 WL 1671536, *3. Therefore, no direct conflict exists sufficient to refer the case to a hearing en banc.
MOTION
Considering the Motion for Leave to File Reply Brief in Support of Application for Rehearing or, Alternatively, Rehearing En Banc, filed by the appellee, it is hereby ordered that the motion for leave to file the reply brief is granted.
DECREE
Accordingly, the application for rehearing raises no new issues for consideration and the Court did not err in its reversal of the trial court's judgment. Therefore, rehearing is granted for clarification only and rehearing en banc is denied. The Court's opinion of June 15, 2022 stands unchanged.
REHEARING GRANTED FOR CLARIFICATION ONLY; REHEARING EN BANC DENIED
BELSOME, J. DISSENTS
I respectfully dissent from the majority's position for the reasons stated in my original dissent. I would grant the rehearing.
LOBRANO, J., CONCURS AND ASSIGNS REASONS.
On rehearing, I respectfully concur, and I maintain my position to reverse the judgment of the district court. As expressed in my original concurrence, I find that coverage exists as a result of COVID-19 contamination. This finding is based on, inter alia, a reasonable interpretation of the word "physical" in keeping with the contamination theory of coverage adopted in Widder v. Louisiana Citizens Prop. Ins. Corp., 11-0196, p. 4 (La.App. 4 Cir. 8/10/11), 82 So.3d 294, 296, writ denied, 11-2336 (La. 12/2/11), 76 So.3d 1179, and the mandated application of the ambiguity principle as construed against insurance companies and in favor of policyholders pursuant to the rules of contractual interpretation in the Louisiana Civil Code.
See, e.g., La. C.C. art. 2053 ("A doubtful provision must be interpreted in light of the nature of the contract, equity, usages, the conduct of the parties before and after the formation of the contract, and of other contracts of a like nature between the same parties."); La. C.C. art. 2049 ("A provision susceptible of different meanings must be interpreted with a meaning that renders it effective and not with one that renders it ineffective."); La. C.C. art. 2056 ("In case of doubt that cannot be otherwise resolved, a provision in a contract must be interpreted against the party who furnished its text. A contract executed in a standard form of one party must be interpreted, in case of doubt, in favor of the other party.").
I write only to further the discussion of Widder and the application of its expanded interpretation of the term "physical" in contractual insurance settings that pertain to microscopic and molecular level disease-causing contamination and insurance policies that do not include a viral or contamination exclusion. Widder's holding drastically broadened the interpretation of "physical" in such settings and should have alerted insurance companies that the word "physical" has entered into the realm of ambiguity in our circuit in such settings. Widder's expansion of the term beyond its original meaning under its contamination theory made it susceptible to more than one reasonable interpretation, especially when viewed within the spectrum of property losses from microscopic contamination; thus, courts have found that the totaled, diminished, and/or suspended loss of a property's use, functionality, and/or reliability can constitute "physical loss or damage" under various contamination theories of coverage. The arguments raised by the insurance company ("Lloyd's") in its rehearing application - that "there is nothing ambiguous about a requirement of physical damage" and "[i]ts ordinary, prevailing meaning requires tangible alteration of the property" - fail to recognize Widder's applicability in the context of contractual interpretation and the ambiguity principle.
See, e.g., Tred R. Eyerly, Is the Presence of Coronavirus "Direct Physical Loss or Damage" Under A Property Policy?, Haw. B.J., July 2020, at 4-7 (discussing cases in other jurisdictions finding direct physical loss or damage without harm to the structure and contrasting cases rejecting this contamination theory without physical loss; noting Widder's holding that "intrusion of lead was a direct physical loss even if the building itself was not harmed" and extrapolating by extension that "many cases would seemingly find the presence of coronavirus in a building constitutes 'direct physical loss or damage' under a property policy"); Charles S. LiMandri, Milan L. Brandon, and Noel J. Meza, Pandemic of Coverage Litigation for Business Income Losses Due to Coronavirus Plagues Insurance Industry, 32 No. 4 Cal. Ins. L. & Reg. Rep NL 1 (comparing Widder to odor and vapor cases finding coverage in the absence of tangible physical alteration); Peony Fine Clothing, LLC v. State Farm Fire & Cas. Co., No. CV 21-1650-WBV-MBN, 2022 WL 742439, at *4 (E.D. La. Mar. 11, 2022)(declining to apply Widder in the absence of showing "that the presence of COVID-19 rendered its premises uninhabitable or required remediation beyond cleaning"); Q Clothier New Orleans LLC v. Twin City Fire Ins. Co., 535 F.Supp.3d 574, 582 (E.D. La. 2021), aff'd sub nom. Q Clothier New Orleans, L.L.C. v. Twin City Fire Ins. Co., 29 F.4th 252 (5th Cir. 2022)(citing Widder and In re Chinese Manufactured Drywall Products Liability Litigation ("In re Chinese Drywall"), 759 F.Supp.2d 822, 831-32 (E.D. La. 2010) and noting that "[a]lthough such damage cannot be perceived by the senses, we found [contamination] to be a covered physical loss because it 'rendered the home unusable and inhabitable'"); Assocs. in Periodontics, PLC v. Cincinnati Ins. Co., 540 F.Supp.3d 441, 448 (D. Vt. 2021)(citing Widder and Kim-Chee LLC v. Philadelphia Indem. Ins. Co., 535 F.Supp.3d 152, 161 (W.D.N.Y. 2021), aff'd, No. 21-1082-CV, 2022 WL 258569 (2d Cir. Jan. 28, 2022) and criticizing contamination theory applied to "all structures and, indeed, all places in the world" as opposed to a specific covered property); Gregory Packaging, Inc. v. Travelers Prop. Cas. Co. of Am., No. 2:12-CV-04418-WHW, 2014 WL 6675934, at *8 (D.N.J. Nov. 25, 2014)(finding "physical loss of or damage to" facility when ammonia gas was discharged into facility's air and rendered facility temporarily unfit for occupancy).
See Scott G. Johnson, What Constitutes Physical Loss or Damage in A Property Insurance Policy?, 54 Tort Trial & Ins. Prac. L.J. 95 (2019) observing:
[S]ome courts have found that "physical loss or damage" does not require that the physical loss or damage be tangible, structural, or even visible. These courts have determined that the presence of bacteria, odors, or noxious gases in a building may constitute physical loss or damage if the property is rendered uninhabitable or unfit for its intended purpose. In doing so, these cases have further broadened the interpretation of the "physical loss or damage" requirement and have decided that it is satisfied where the property's value, usefulness, or functionality has been destroyed or diminished. But coverage for these types of claims may still be excluded by contamination and pollution exclusions.Id. at 117.
In 2011, Widder found coverage in the absence of a distinct, demonstrable, tangible, physical alteration of the property. Widder expanded the word "physical" beyond its ordinary sense and adopted an expansive contamination theory in our circuit finding, inter alia, that "physical damage is not necessary" in allowing coverage when the contamination is at the molecular or microscopic level. Widder, 11-0196, p. 4, 82 So.3d at 296. Contamination theories of coverage are the result of the microscopic nature of the contamination, which is "not discernible with the naked human eye." Cajun Conti LLC v. Certain Underwriters at Lloyd's, London, 21-0343, p. 11 (La.App. 4 Cir. 6/15/22), __ So.3d __, __, 2022 WL 2154863, at *5. The Widder court found that the contamination caused the total impairment of the property's intended use, which rendered the property "unusable and uninhabitable." Widder, 11-0196, p. 4, 82 So.3d at 296. Widder then afforded coverage under a nebulous analysis with respect to the contamination and its nexus to "direct physical loss" or "damage." This left the Widder interpretation of "physical" in a state of ambiguity, prone to judicial expansion, containment, and/or analytical confusion, and susceptible to more than one reasonable interpretation.
See generally Widder, supra.
Widder relied on In re Chinese Drywall, supra, in holding that the presence of the contaminant rendered the property "unusable or uninhabitable," which both courts equated with "direct physical loss." The In re Chinese Drywall court found that the alleged damages that the contaminant caused to plaintiffs' homes were a covered physical loss, and Widder extended that finding to conclude that the "intrusion" of the contaminant was a "direct physical loss" rendering the property "unusable and uninhabitable." Widder found that "physical damage is not necessary" in allowing coverage. Widder, 11-0196, p. 4, 82 So.3d at 296 (citing In re Chinese Drywall, 759 F.Supp.2d at 832 (quoting TRAVCO Ins. Co. v. Ward, 715 F.Supp.2d 699, 708 (E.D. Va. 2010)). Widder compared the "type of loss" as "similar to the type of loss experienced from Chinese drywall." Widder did not define "physical," 11-0196, pp. 3-4, 82 So.3d at 296, but instead adopted a nebulous, microbial contamination theory of coverage in our circuit that allowed for the further broadening of the interpretation of the "physical loss or damage" requirement. See Johnson, supra n. 3, at 123-24, concluding:
Physical loss or damage remains a necessary predicate to property insurance coverage. Using the dictionary definition of "physical" as a guide, many courts require that an insured demonstrate that the insured property suffered a distinct, demonstrable, and physical change or alteration to satisfy the threshold requirement for coverage. Some courts have even found that the insured has this burden even where the claimed physical damage occurs at the molecular or microscopic level. But other courts have adopted a much broader interpretation of the "physical loss or damage" requirement. These courts have found coverage in the absence of a distinct, demonstrable physical alteration of the property where the insured property has become uninhabitable or where a property's function or reliability has been impaired. Thus, in some courts' view, loss of property's use, functionality, or reliability can constitute physical loss or damage. But in doing so, these courts have largely rendered the word "physical" meaningless and have failed to account for the historical origins of the "physical loss or damage" requirement.
Thus, after Widder, the principle that ambiguous provisions in insurance contracts are construed in favor of policyholders is more likely to be judicially invoked in contractual insurance settings involving microscopic level disease-causing contamination insurance policies that do not include a viral or contamination exclusion.
In 2019, Lloyd's entered into an insurance contract with the policyholder ("Oceana") covering viral contamination without a clear understanding of "physical." This Court's original opinion noted, "[t]he policy does not define 'direct physical loss' or 'damage.'" Cajun Conti LLC, 21-0343, p. 8, __ So.3d at __, 2022 WL 2154863, at *4. I agree with the original opinion that "viral exclusions which eliminated the insurer's liability for loss or damage caused by a virus were available on the market;" however, Lloyd's did not include a viral exclusion in the policy it drafted and sold to Oceana, which reasonably expected full all-risk coverage for viral contaminations. Id., 21-0343, p. 17, __ So.3d at __, 2022 WL 2154863, at *7. This evidence, coupled with a "vague provision," strengthens the equity and policy considerations of construing coverage in favor of Oceana and against Lloyd's pursuant to the rules of contractual interpretation. Id., 21-0343, pp. 15-17, __ So.3d at __, 2022 WL 2154863, at *7.
"The presence of this ambiguity and the existence of two equally reasonable interpretations as to what constitutes a 'direct physical loss of or damage to' the insured property requires the Court to liberally construe the provision in favor of coverage for the [policyholder] and against the [insurance company], who drafted the vague provision." Id., 21-0343, p. 15, __ So.3d at __, 2022 WL 2154863, at *7 (citations omitted).
In construing insurance policies, consideration must be given to (1) an insurance company's rights to limit its contractually-assumed liability and to clarify the meaning of terms and provisions in a contract, and (2) an insurance company's "extraordinary control over the terms of coverage" by possessing knowledge of "critical industry practice," "detailed risk determinations," and developing laws and jurisprudence. When a policy does not clearly limit an insurance company's liability, including the failure to clarify the meaning of a word or theory that a court has expanded or adopted, such policy omissions strengthen the equity and policy considerations of construing coverage in favor of the policyholder pursuant to the rules of contractual interpretation set forth in the Louisiana Civil Code. I invoke the ambiguity principle in the case sub judice to encourage the placement of such insurance coverage decisions in the business conference room and not the courtroom.
See Stewart Interior Contractors, L.L.C. v. Metalpro Indus., L.L.C., 07-0251, p. 7 (La.App. 4 Cir. 10/10/07), 969 So.2d 653, 659.
David J. Seno, The Doctrine of Reasonable Expectations in Insurance Law: What to Expect in Wisconsin, 85 Marq. L. Rev. 859, 867 (2002)(citing Mark C. Rahdert, Reasonable Expectations Revisited, 5 Conn. Ins. L.J. 107, 127 (1998)). See Aguillard v. Auction Management Corp., 04-2804, p. 10 (La. 6/29/05), 908 So.2d 1, 9 (quoting Saul Litvinoff, Consent Revisited: Offer, Acceptance, Option, Right of First Refusal, and Contracts of Adhesion in the Revision of the Louisiana Law of Obligations, 47 La.L.Rev. 699, 757-59 (1987)) (noting potential adhesionary nature of standard form insurance contracts and stating that "[o]wing to the necessities of modern life a particular kind of contract has been developed where one of the parties is not free to bargain" and "[t]he party in the weaker position is left with no other choice than to adhere to the terms proposed by the other."). See also n. 1, infra.
See notes 1 and 8, infra.
JENKINS, J., CONCURS IN THE RESULT
MCKAY, J., PRO TEMPORE, CONCURS IN RESULT