When the COVID-19 pandemic struck, insurance brokers warned restaurant clients against trying to file for coverage in the event of a shutdown. Insurers had preemptively and categorically refused to consider claims.

Early last month, though, a Superior Court judge ruled that Cincinnati Insurance Company, one of the largest property insurers in the country, was liable for coverage in a lawsuit brought collectively by sixteen restaurants.

The decision hit home for two reasons. One was that the restaurants are here in the Triangle. They include the Matt Kelly and Giorgios Bakatsias portfolio: Mateo Tapas, Saint James Seafood, Vin Rouge, and more than a dozen others “who use our resources and make management decisions together on a regular basis,” Kelly told the INDY.

The other reason: among over 1,000 similar suits brought nationwide during the pandemic, this is the first that any plaintiff has won; strictly speaking, it is “the first judgment in the country that is nonprocedural and finds that coverage should be provided,” says Gagan Gupta from Hillsborough-based Paynter Law, the lead attorney on the case. The victory, he adds, “will hopefully be precedent for North Carolina and for states around the country.”

The key to Gupta’s successful litigation was his focus not on the virus itself—specific coverage for which insurers might more easily contest—but on Governor Roy Cooper’s Executive Orders that mandated closures. Gupta zeroed in on the policy language’s inclusion of two terms: “damage” and “loss.” If the contractual phrase “direct physical damage” was reasonably understood as a structural alteration to property,

Gupta argued, “direct physical loss” must mean something different. District 14A Superior Court Judge Orlando Hudson agreed, finding that “‘direct physical loss’ describes the scenario where business owners and their employees, customers, vendors, suppliers, and others lose the full range of rights and advantages of using or accessing their business property. This was precisely the loss caused by the Government Orders.”

Ironically, those orders came just weeks after Saint James Seafood had finally reopened, following a nearly ten-month closure caused by the deadly Brightleaf Square gas leak explosion in 2019. Kelly was thus no stranger to his insurance policy. But parsing its application to the pandemic was “beyond anything we thought we would ever understand.”

“It was an emotional moment,” Bakatsias says, remembering meeting with his ownership group in March to assess the emergency. Livelihoods and careers were at stake. 

“How are small, independent restaurants going to [find] the resources and skillset to fight in a situation where we shouldn’t [have to] be fighting at all?” Kelly wondered.

As it happened, Gupta and his fiancée, Erika Larson, had planned to hold their wedding reception at Vin Rouge, which is co-owned by Kelly and Bakatsias, on Labor Day weekend. With that in doubt, “I thought maybe there was a way I could help out,” Gupta says. He offered to look over Kelly’s policy, as he had done for many small local businesses during the spring, aiming to attract clients for litigation. (The INDY reported on Gupta’s efforts in April.) When he looked at Kelly’s plan, he says it was clear that coverage should be provided. 

“Gagan was very articulate and confident,” Kelly says. “He gave us real hope. That’s why I said, ‘Let’s put some time into it and see if we can get some traction.’”

“They took a risk and dedicated quite a bit of their team’s resources and effort” to the lawsuit, Gupta says.

More will be required. Last week, Cincinnati Insurance Company formally appealed Judge Hudson’s ruling, citing a letter from North Carolina Insurance Commissioner Mike Causey that reasoned that business interruption insurance had not been designed for a pandemic and that this type of loss could “cripple” the insurance industry. 

Concerningly, the November elections also saw every contested state appellate and supreme court seat flip Republican—unfavorable results that “appeared to validate the politically motivated decision of Republican lawmakers in recent years to change all judicial races from nonpartisan to partisan,” according to NC Policy Watch. (The close race between incumbent Democratic Supreme Court Chief Justice Cheri Beasley and Republican challenger Paul Newby remains undecided as of this writing, and may require a recount.) 

“We’re definitely pushing a boulder up a hill,” Gupta acknowledges. He’s ready for a potentially protracted legal battle. Meanwhile, there are more immediate concerns—like the weather. 

“Winter is coming,” Kelly worries. “Outdoor seating is what gets people to our places right now. A month or so ago, a big cold front moved in for a couple weeks. It gave us a real dose of reality.” 

Bakatsias is older and more philosophical. Still, he admits, “I could paint a rosy picture, but it wouldn’t be true. People are closing while we’re having this conversation. People are selling things off so they can get by.”

Their restaurants never stopped paying full-time salaries to managers and chefs—“We needed them to be on the frontlines for us,” Bakatsias says—even after federal Paycheck Protection Program funds ran out.

“I’m looking at bankruptcy,” Kelly, who is still recovering from losses resulting from Saint James Seafood’s long closure, says. “The money we’re losing is not imaginary money.”

To-go business has only slowed, not stopped, the bleeding. Ditto Durham’s autumn weekend Streetery, which feels festive but isn’t sustaining or sustainable. (It ends in mid-December.) And indoor dining rooms are still limited to half-capacity. The Executive Orders, however necessary, continue to cause losses. Just because restaurants are open doesn’t mean they’re making money. Appetizing local Instagram feeds that tag the likes of the Streetery project the high life and spirits of the hospitality business. But, Kelly says, “We’re not in the realm of hospitality right now.”

Instead, they’ve ventured into the murkier realm of the law, where they’re fighting not only for themselves but on behalf of all restaurants. It might not be a stretch to say they’re fighting for all of us who dine in them, too.  

Comment on this story at food@indyweek.com.

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