California businesses that had to close during the COVID-19 shutdowns have repeatedly been denied coverage for their losses by insurers and the courts. But a policy widely issued by Hartford Insurance specifically covers certain damage caused by a virus, and a state appeals court said it could apply to lost revenue at a San Francisco restaurant.
Typical property damage policies cover businesses for financial loss caused by “direct physical loss or damage to (their) property”. Almost every state and federal court in California and elsewhere that has considered the matter has upheld the insurers’ denial of coverage, finding that the commercial establishments suffered no physical damage to their property as a result of the presence of the coronavirus.
However, the policy issued by the Hartford Sentinel Insurance subsidiary at John’s Grill in downtown San Francisco explicitly covered loss or damage caused by “fungi, wet rot, dry rot, bacteria, or viruses.” While the policy also contained a number of exemptions, which Sentinel said would deny John’s Grill coverage, the First District Court of Appeals ruled on Tuesday that a restaurant may be eligible for coverage under the terms of the font.
“Insurers cannot support a cover subsidy that names a specifically covered peril – here, viral contamination – and then justify denying cover in all circumstances” because of the exemptions claimed, Judge Jon Streeter said. . in a 3-0 decisionreinstating the lawsuit, which a judge had thrown out. “Under California law, we strive to give an affirmative grant of coverage its full scope,” resolving ambiguous language “in accordance with the reasonable expectations of the insured,” Streeter said.
In an unusual twist, John’s Grill settled his case with his insurer two weeks ago, in confidence, after the court heard arguments in the case, meaning he will not benefit financially from the reinstatement of his lawsuit. But the decision was celebrated by restaurant owner John Konstin and his lawyers.
“John’s Grill has pursued this matter to set the bar for all restaurants in the state of California,” Konstin said in a statement. “I hope other family businesses can benefit from this.”
Attorney Brian Danitz said many companies in the state have policies identical to Hartford’s, and federal courts, interpreting California law, have denied coverage for COVID-related losses under those policies. .
“This case clarifies California law and makes a big difference in how the law will be interpreted,” said Danitz, an attorney at Cotchett, Pitre & McCarthy.
Sentinel’s attorneys could not be reached for comment. The insurer could seek review by the state Supreme Court, which has denied appeals of lower court rulings in favor of the insurers but has yet to issue its own ruling on coverage for business losses related to the COVID. That could change, however, due to a request from a federal appeals court in a separate case.
This case involves Another Planet Entertainment, a concert organizer, which had to cancel events in 2020 and was denied coverage by Vigilant Insurance Co. under the standard policy applicable to physical loss or property damage. A federal judge in San Francisco dismissed Another Planet’s lawsuit, but a panel of the Ninth US Circuit Court of Appeals filed an application with the state Supreme Court on Wednesday to review the case and clarify the issue under California law. The court typically grants such claims, and it could also consolidate the case with the dispute over John’s Grill if the insurance company appeals Tuesday’s decision.
John’s Grill closed in March 2020, in response to San Francisco shutdown orders, and laid off 54 employees. The restaurant reopened in August 2020, closed again in December after a surge of virus cases, and reopened in March 2021, a combined closure of 220 days. Kostin estimated the company’s losses at $20 million.
Sentinel argued, and Superior Court Judge Ethan Schulman agreed, that the insurance policy only covered virus-related losses for causes stated in the policy, none of which were claimed by John’s Grill. But the appeals court said the company’s argument, if accepted, would effectively void the virus coverage offered in the policy and paid for by the restaurant.
“We believe that a reasonable insured would also expect coverage,” Streeter wrote, “for the resulting loss of ability to use the restaurant for its intended purpose.”
Bob Egelko is a writer for the San Francisco Chronicle. Email: [email protected] Twitter: @BobEgelko
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