Red Lobster owner sues insurer to clawback $1.2 million settlement

The owner of a fire-damaged building leased to a Red Lobster restaurant is blaming the restaurant’s insurer for missing out on $1.2 million in fire insurance payouts to repair the property.

RL New Brunswick Owner LLC, which leased a property in East Brunswick, New Jersey to Red Lobster, claims that Zurich American Insurance Co. breached its insurance contract and was negligent in failing to include its name as a loss payee on two claim checks it issued to Red. Lobster after a fire in August 2022 damaged the property.

The Zurich insurance policy for Red Lobster provided property damage coverage up to $6,774,326. RL New Brunswick says it was listed as the loss payee on the policy as set out in the lease with Red Lobster.

In November 2022, Zurich issued a check to Red Lobster in the amount of $1,000,000 for fire damage to the property. Then, in May 2023, Zurich issued a second damage check to Red Lobster for $242,411.64. Despite being a policy loss beneficiary, RL New Brunswick says it was not named on any of the settlement checks. According to the complaint, the fact that RL New Brunswick was not named on the checks allowed Red Lobster to avoid using the proceeds to repair the fire-damaged property.

The complaint alleges that Red Lobster deposited the settlement checks into its Wells Fargo bank account, commingling the insurance funds with its other assets during the time it was facing financial difficulties. Red Lobster filed for bankruptcy protection in May 2024, and all of its assets were then converted into assets of the bankruptcy estate. After filing for bankruptcy, Red Lobster was prohibited from using the proceeds of the insurance settlement to repair the property.

If it had been named a loss payee, RL New Brunswick says it could have ordered that the funds be used only to repair the property as stipulated in the contract. Zurich’s alleged failure amounts to a breach of contract and negligence, according to the suit, which seeks compensatory and consequential damages, legal costs and attorneys’ fees and other relief the court deems just and appropriate.

The complaint was originally filed against Zürich on August 1 in state court. Zurich has yet to respond, but the suit was removed from state court to the federal district court in New Jersey on September 5.

On September 6, Red Lobster Management LLC announced that it received court approval for its Chapter 11 plan. As part of the Chapter 11 plan, RL Investor Holdings LLC will acquire the Red Lobster restaurant chain. RL Investor Holdings LLC represents funds managed by affiliates of Fortress Investment Group LLC along with co-investors TCW Private Credit and Blue Torch. The acquisition is expected to close before the end of September.

According to the plan approved by Chapter 11, Damola Adamolekun will become the chief executive officer of the reorganized company. Adamolekun is the former CEO of global restaurant chain PF Chang’s. Red Lobster is slated to continue operating as an independent company with 544 locations in 44 US states and four Canadian provinces.