Red Lobster Landlord Sues Insurer to ‘Clawback’ $1.2M Fire Claim Payment

The landlord for a fire-damaged building leased to a Red Lobster restaurant is blaming the restaurant’s insurer for causing it to lose out on $1.2 million in fire insurance claims payments to repair the property.

RL New Brunswick Owner LLC, which leased an East Brunswick, New Jersey property to Red Lobster, claims Zurich American Insurance Co. breached its insurance contract and was negligent for not including its name as a loss payee on two claims checks it issued to the Red Lobster after a fire in August 2022 damaged the property.

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

In November 2022, Zurich issued a claims 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 claims check to Red Lobster for $242,411.64. Despite its being a loss payee on the policy, RL New Brunswick says it was not named on either settlement check. According to the complaint, RL New Brunswick’s not being 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, comingling the insurance funds with its other assets around the time it was experiencing financial difficulties. Red Lobster filed for bankruptcy protection in May 2024 and all of its assets were then converted into assets of the bankrupt estate. After the bankruptcy filing, Red Lobster was prohibited from using insurance settlement proceeds to repair the property.

Had it been named as a loss payee, RL New Brunswick says it would have been able to direct that the funds be used only to repair the property as required under the lease. Zurich’s alleged failure amounts to a breach of contract and negligence, according to the lawsuit, which seeks compensatory and consequential damages, legal costs and attorneys’ fees, and further relief as the court deems just and proper.

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

On September 6, Red Lobster Management LLC announced that it had received court approval of 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 anticipated to close before the end of September.

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