Terry Black's Barbecue, L.L.C. v. State Auto. Mut. Ins. Co.

Terry Black's Barbecue, L.L.C. v. State Auto. Mut. Ins. Co.

Opinion

 [*452]  James E. Graves, [**2]  Jr., Circuit Judge:

In the wake of the COVID-19 pandemic, government officials and civil authorities across the nation placed several limitations on the operations of nonessential businesses. In Texas, among orders for reduced-sized  [*453]  gatherings and social distancing measures, civil authorities prohibited restaurants from offering dine-in services. Terry Black's Barbecue restaurants followed these orders. Unsurprisingly, the restaurants lost revenue.

Terry Black's then tried to recoup its losses through its commercial property insurance policy which covers business interruption losses caused by "direct physical loss of or damage to property." The insurer, however, determined the policy did not cover the claimed losses. Terry Black's sued and the district court granted judgment on the pleadings in favor of the insurer. Because the suspension of dine-in services during the COVID-19 pandemic is not a direct physical loss of or damage to property, we AFFIRM.

I. BACKGROUND

Appellants Terry Black's Barbecue, L.L.C. and Terry Black's Barbecue Dallas, L.L.C. (collectively, TBB) own and operate two barbecue dine-in restaurants in Austin and Dallas, Texas, respectively. Each of the restaurants is [**3]  insured by identical, but separate, commercial property insurance policies.¹ The policy was issued by Appellee State Automobile Mutual Insurance Company.

The policy is an "all risk" commercial property insurance policy and includes business income and extra expense coverage (BI/EE). That coverage extends to "the actual loss of Business Income . . . sustain[ed] and Extra Expense . . . incur[red] due to the necessary suspension of [TBB's] operations during the period of restoration." ] To trigger this coverage, the suspension of operations "must be caused by direct physical loss of or damage to property at the premises." The policy defines the period of restoration as the period that begins at the time of loss or damage and ends when the property is "repaired, rebuilt or replaced" or when operations resume at a new location. The policy also has a restaurant extension endorsement (REE) providing coverage for "the suspension of [TBB's] operations at the described premises due to the order of a civil authority . . . resulting from the actual or alleged . . . exposure of the described premises to a contagious or infectious disease."

On March 19, 2020, in response to the COVID-19 pandemic, the [**4]  Governor of Texas issued an executive order directing people to avoid eating or drinking at restaurants. The Governor encouraged restaurants to use drive-thru, pickup, and delivery options rather than host dine-in services. In Travis and Dallas Counties, civil authorities also prohibited in-person restaurant services and limited restaurants to providing take out, delivery, or drive-thru services.

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