Dive Brief:

• California-based In-N-Out Burgers has sued Zurich American Insurance Co. for a breach of contract, alleging the company wrongly denied coverage of the chain’s losses from the nationwide lockdown due to the coronavirus, according Law360 reports.
• In-N-Out has an "all-risk" insurance policy for business interruption losses, which includes viruses and diease-causing illness.
• However, the chain claims that Zurich announced there is no coverage for "virtually all business interruption losses arising from the novel coronavirus."

Dive Insight:

In-N-Out is the latest restaurant company, and could be the largest so far, that has brought forth a lawsuit of this nature. This wave of business interruption lawsuits began in early March, about the same time the first lockdown orders were put into place. At that time, New Orleans restaurant Oceana Grill asked a state judge to hold that its business interruption policy with Lloyd's of London will cover its losses due to government-mandated closures, according to Law360.

That was followed by similar suits from Chef Thomas Keller for his Napa Valley-based French restaurants, Florida-based El Novillo Restaurant group, Pennsylvania-based HTR Restaurants, New Jersey-based Benito Ristorante, Dallas-based Vandelay Hospitality Group LP and Pennsylvania-based Billy Goat Tavern.

Unlike those concepts, however, In-N-Out is a quick-service concept with a drive-thru. Even though the chain, like other QSRs, has a robust drive-thru business, the suit states that most of In-N-Out has and will continue to sustain significant losses due to closures of its dining rooms related to the pandemic. No doubt that makes a difference in just how much sales have been affected by the nationwide lockdowns. Some casual dining chains, for example, have lost up to 75% of their sales because their bread-and-butter sit-down business had been shut down completely.

That doesn’t mean the answer to these lawsuits is clear, however. In fact, quite the opposite. Often at issue is ambiguous language in the policies, but some policies clearly exclude phenomenon like the novel coronavirus. The Washington Post reports that such contractual exclusions were prompted by the SARS outbreak in the early 2000s.

Considering the widespread devastation the pandemic has posed on the restaurant industry, such coverage could have equally dramatic effects on the insurance industry. Domestically, the American Property Casualty Insurance Association estimates that paying for such claims would destabilize the insurance industry. Estimated claims just from small businesses during the coronavirus pandemic could total more than $430 billion a month in the U.S. Insurance groups have proposed a short-term revenue replacement assistance program that would come from the federal government to cover payroll and other costs in a future pandemic saying that pandemics are too widespread and too severe for the insurance industry to cover. But that won't necessarily help restaurants during the current pandemic. 

As evidenced by the aforementioned list of lawsuits, however, restaurants are not going down without a fight. Some of those lawsuits were filed as a class action, hoping to bring in similarly situated businesses that have also been denied coverage. Further, one group of restaurant owners has launched Business Interruption Group, or BIG, with an objective of taking their fight against insurance companies national. A French court recently ruled in favor of a restaurant company for such coverage, so there is perhaps reason for them to be optimistic.