Friedman & Feiger is the latest law firm to file a lawsuit on behalf of a restaurant for denied business interruption claims connected to the COVID-19 pandemic and local stay-at-home orders.
F&F’s Jason Friedman and Shauna Izadi filed a lawsuit Thursday in Dallas County on behalf of Dallas-based Vandelay Hospitality Group, which operates East Coast-inspired neighborhood restaurant Hudson House, Old Hollywood-inspired steakhouse Drake’s Hollywood and popular upscale sandwich chain East Hampton Sandwich Co.
Vandelay claims its insurer, Ohio-based Cincinnati Insurance Company, went back on its promise to indemnify Vandelay for losses from business interruption caused by coronavirus-inspired government orders through the restaurant group’s commercial insurance policy. Vandelay also named its local insurance broker, Baron Cass of Swingle Collins & Associates, as a defendant in the lawsuit.
Cass did not immediately respond to a request for comment. A Cincinnati Insurance spokesperson declined to comment on ongoing litigation.
“We respect the rights of all parties to have their issues heard and resolved in a court of law,” the spokesperson said in an email.
Friedman said that Cass has been served with the lawsuit, but service is still pending for Cincinnati.
According to the complaint, Vandelay purchased a commercial property insurance policy from Cincinnati for both of its Hudson House locations and its single Drake’s Hollywood location. Vandelay said the policy covers business interruption caused by a government order and has been valid throughout the period in which the business implications of the coronavirus have unfolded.
After multiple city and state orders forced all restaurants in Texas to temporarily close their doors to dine-in customers, Vandelay provided a notice of claim on March 17 to Cincinnati through Cass. On March 23, Cincinnati submitted a reservation of rights letter to Vandelay, which indicated its position of no coverage on the premise that the coronavirus pandemic does not constitute as direct physical loss or damage to Vandelay’s property.
“Although plaintiff has yet to receive a formal denial of coverage, the above statement from Cincinnati’s agent is clear: Cincinnati has no intention of providing coverage under its policy,” the lawsuit says.
Vandelay argues that Cincinnati’s no-coverage position is not supported by the facts.
“Direct physical loss can exist without actual structural damage to the property,” the complaint says. “In analogous circumstances to the COVID-19 agent, the presence of harmful substances at or on a property can constitute property damage or direct physical loss that triggers first party property damage.”
Moreover, Friedman pointed out, Dallas County Judge Clay Jenkins determined in a March 31 order that the COVID-19 virus does cause property damage due to its ability to attach to surfaces for prolonged periods of time.
“Putting that in the order I think gives rise to also submit a claim for property damage,” Friedman told The Texas Lawbook.
Friedman said he has reviewed about 70 different policies, and out of them, about 95% include exclusions for viruses. But he said Cincinnati had no such exclusion in Vandelay’s policy.
Asked if he believes more Dallas restaurant lawsuits against their insurers are on the horizon, Friedman replied, “based on the county judge’s order, and some of the language in some of these policies — regardless of virus exclusion — I think there is possibly coverage for these businesses.
“What I thought was interesting is how many of these insurance companies have virus exclusions,” Friedman said. “When in the U.S. have we ever really had such an issue with viruses? We had SARS but that was in Asia … it never got here.”
For its part, Vandelay says it has upheld its obligations by paying all its premiums since coverage under its policy began in July 2019.
“Plaintiff reasonably believed and expected that the insurance purchased from Cincinnati included coverage for property damage and business interruption losses caused by viruses like [COVID-19],” the lawsuit says. “Had Cincinnati wanted to exclude pandemic-related losses … it easily could have attempted to do so on the front-end with an express exclusion.
“Instead, Cincinnati collected substantial premiums, and after a pandemic and the resulting closure orders, caused catastrophic business losses to plaintiff to try to limit its exposure on the backend through its erroneous assertion that the presence of COVID-19 is not a physical loss and thus is not [covered].”
Vandelay seeks more than $1 million in damages for breach of contract, breach of good faith and fair dealing, violation of the Texas Prompt Pay Act and violation of the Texas Insurance Code. It also seeks a declaratory judgment of coverage from the court.
The case has been assigned to Dallas District Judge Martin Hoffman.
Founded in 2012 by 24-year-old restauranteur Hunter Pond, Vandelay operates 12 restaurants in Dallas, Houston, Fort Worth and Plano. With entrepreneurship as his true calling, Pond, now 32, started his company after dropping out of law school at St. Mary’s University.
Pond and his business partner, Kyle Brooks, who are both Seinfeld aficionados, named their company after Vandelay Industries, a made-up company that Seinfeld characters George Constanza and Jerry Seinfeld once purported to work for.
Vandelay’s 12th restaurant, Lucky’s Hot Chicken, will be inspired by the Nashville Hot Chicken food trend. It is slated to open this year in Old East Dallas.
Vandelay’s chief counsel is Dallas attorney Chris McNeill, a name partner at transactional law boutique Block Garden & McNeill. McNeill previously practiced corporate law at Fish & Richardson and Fulbright & Jaworski.