Legal Sea Foods considers appeal after losing insurance case

Legal Sea Foods is “considering its options” after a federal judge ruled against the seafood restaurant chain on its COVID-19 insurance case, the company’s attorney told SeafoodSource.

The Boston, Massachusetts, U.S.A.-based foodservice chain, which became embroiled in a separate controversy last month involving its creditors, sued Strathmore Insurance Company in May 2020 over failure to cover business losses Legal Sea Foods incurred from the COVID-19 pandemic.

However, U.S. District Judge Nathaniel Gorton dismissed the case, saying that coronavirus does not affect the structural integrity of a property “and thus cannot constitute ‘direct physical loss of or damage to’ property.’”

“Legal does not plausibly allege that its business interruption losses resulted from the presence of COVID-19 at the designated properties,” Gorton wrote in the order. Instead, it indicates…that “[t]he orders caused and are continuing to cause” the losses for which it claims entitlement to coverage,” Judge Gorton wrote in his ruling.

Even if Legal had properly alleged that COVID-19 caused business interruption losses due to its presence at its restaurants, the company would not be entitled to coverage under the insurance policy, Gorton said.

Legal Sea Foods is “disappointed” in the ruling and is “considering its options,” Harry Manion, attorney with Hunton Andrews Kurth LLP, which is representing Legal, said in a statement provided to SeafoodSource.

"Legal’s case is based on the physical loss and damage caused by the actual presence of COVID-19 in its restaurants, not solely government orders. This oversight is just one of several critical errors in the court’s decision,” Manion said.

The court jumped to an evidentiary conclusion about how COVID-19 affects property – an issue that was not before the court, Manion said. 

“The only issue the court should have been weighing is whether Legal ‘plausibly’ plead a covered claim; proof was not yet necessary, although Legal is able to clear that hurdle, if given the opportunity,” Manion said.

In the decision’s aftermath, Legal is looking broadly at its options, according to Manion.

“In light of these and other errors in the court’s decision, Legal is considering its options,” he said.

In February, a Boston Globe article reported several of Legal' Sea Foods' unsecured creditors have not been paid back debts owed by the seafood restaurant chain after its sale to PPX Hospitality Group. 

As then-owner of Legal Sea Foods, Berkowitz filed the Strathmore insurance lawsuit last May, but after 21 December, he no longer owned the company. Therefore, he has “no knowledge or control of how funds were dispersed,” his spokesperson, Lindsay Rotondi, told SeafoodSource in February.

“[Roger] did the best he could under tough circumstances. Roger Berkowitz, like countless restaurant owners across the country, had to make a very difficult decision because of the pandemic. Roger chose the best option to protect jobs, safeguard the future integrity of the Legal Sea Foods brand, and pay vendors. These priorities were made clear to all parties involved in the sale,” Rotondi said. "As part of the transaction, money was earmarked for vendors, but Roger's affiliation ended when the sale was finalized and he has no knowledge or control of how funds were dispersed.”

Last month, New York City-based advertising firm Devito Verdi filed a complaint in the U.S. District Court for the Southern District of New York against Legal, alleging that the restaurant company owes it nearly USD 628,000 (EUR 528,000).

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