A Hawai‘i appeals court revived Tiki’s Grill & Bar’s fight for business interruption coverage after pandemic barriers blocked access to its restaurant premises.
On Oct. 29, the Intermediate Court of Appeals of Hawai‘i issued a decision in the dispute between Tiki’s Grill & Bar, LLC and DTRIC Insurance Company, Limited. The court vacated a summary judgment previously granted to DTRIC by the Circuit Court of the First Circuit and remanded the case for further proceedings.
The case began in March 2020, when the owner of the Aston Waikiki Beach Hotel, where Tiki’s Grill & Bar operates, boarded up all hotel entrances and exits. This action blocked Tiki’s employees and the public from accessing the restaurant, preventing any business activity, including carry out and delivery service, even though such services were permitted under government orders at the time.
Tiki’s maintained a commercial insurance policy with DTRIC that provided coverage for business income lost due to the “suspension” of operations “caused by direct physical loss of or damage to property at premises.” After being denied access to its leased space, Tiki’s submitted a claim for business interruption losses. DTRIC denied the claim, stating that the interruption was caused by government COVID-19 orders and not by direct physical loss or damage, and that a “virus exclusion” in the policy precluded coverage.
Tiki’s filed suit, seeking a declaratory judgment that DTRIC was obligated to cover its claim. The Circuit Court granted summary judgment to DTRIC. On appeal, Tiki’s argued that the physical boarding up of the premises by a third party constituted a direct physical loss under the policy, and that neither government orders nor the virus itself directly caused the loss.
The Intermediate Court of Appeals examined the insurance policy language. The court noted that the policy covered “the actual loss of Business Income you sustain due to the necessary ‘suspension’ of your ‘operations’ during the ‘period of restoration’,” and that the “suspension” must be “caused by direct physical loss of or damage to property at premises.” The court found that the phrases “physical loss of” and “damage to” must have separate meanings, and that “direct physical loss of property” could reasonably be interpreted to include deprivation of physical access to property due to the imposition of a physical barrier.
The court also reviewed the policy’s virus exclusion, which stated that the insurer would not pay for “loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” The court found that DTRIC had not established that the exclusion clearly applied, since Tiki’s loss was directly caused by the physical boarding up of the premises, not by the virus itself.
The appellate court concluded that Tiki’s had presented a genuine issue of material fact as to whether its business interruption was “caused by direct physical loss of or damage to property” at the premises, and that DTRIC had not established that any policy exclusion precluded coverage as a matter of law. The court vacated the lower court’s summary judgment for DTRIC and remanded the case for further proceedings.
The decision does not guarantee that Tiki’s will ultimately prevail, but it clarifies that loss of access to insured property due to a physical barrier may be covered under business interruption policies, depending on the policy language and facts. The outcome is significant for insurers and policyholders as courts continue to interpret business interruption coverage in the context of pandemic-related claims.
