Hawaii appeals court rules for policyholder in COVID cover case

An insurer cannot reject a restaurant’s COVID-19 business interruption claim for lack of physical damage, because the hotel that housed the business boarded up its doors, a Hawaii appeals court ruled Wednesday.

Numerous federal and state courts have ruled in favor of insurers over COVID-19 business interruption claims, saying the presence of the virus did not constitute direct damage. The Hawaii case, however, involved an additional factor.

In Tiki’s Grill & Bar LLC v. DTRIC Insurance Co. Ltd., the restaurant said it had to cease operations during the 2020 pandemic because the owner of the Waikiki Beach Hotel, in which Tiki’s was located, nailed wooden boards across its entrance and exits, blocking physical access. The action exceeded the lockdown requirements imposed by government authorities, the restaurant said.

DTRIC, a subsidiary of Japanese insurer MS&AD Insurance Group, denied the claim, asserting that Tiki’s business interruption was caused by the government’s COVID-related orders, not by “direct physical loss of or damage” to the premises, as required to trigger coverage.

Overturning a lower court ruling, the Hawaii Intermediate Court of Appeals ruled, “the phrase ‘direct physical loss of … property’ at the premises can reasonably be construed to mean the deprivation of physical access to property at the premises due to the imposition of a physical barrier.”

The appeals court remanded the case for further consideration.

DTRIC did not immediately respond to a request for comment.