California Restaurants Sue Insurers for Coronavirus Coverage

Dear Clients and Colleagues,

With much of the country now under “stay-at-home” or similar orders in response to the spread of COVID-19, businesses deemed “non-essential” have been forced to close. In response, those “non-essential” businesses are preemptively filing suit against their commercial insurers for business income or business interruption losses. Indeed, even President Trump weighed in on this topic recently, tacitly endorsing the idea that insurers should pay for such claims and losses during his daily COVID-19 press conference on 10 April 2020.

In California, two lawsuits were recently filed by restaurants against their insurers seeking business interruption loss coverage due to the virus. The first involves the owners and management company of two renowned Napa Valley restaurants, The French Laundry and Bouchon Bistro, who filed suit against Hartford Fire Insurance Company for losses sustained due to the virus. The suit follows a March 2020 order from the county health department directing all non-essential businesses to cease all activities. Restaurants are not exempt under the county’s order, and plaintiffs were forced to close their restaurants. Hartford insured the plaintiffs under a policy that afforded both property and business income coverage. Plaintiffs allege that the county’s order and the ensuing business loss is covered under the Hartford policy’s “Civil Authority” coverage section. Further, plaintiffs allege covered “property damage” under the policy because the virus physically infects and survives on surfaces of objects and materials, causing damage to the property. It should be noted that the suit was filed even prior to Hartford’s denial of the claim.

A similar lawsuit was filed by the owner of sushi restaurants in Los Angeles County against Farmers Group, Inc. for coverage under a similar “Civil Authority” coverage section provided by Truck Insurance Exchange. The plaintiff operates multiple locations in the Los Angeles area which were forced to close as a result of local orders closing all dine-in restaurants due to COVID-19. As in the Napa Valley litigation, plaintiffs allege such forced closure and the ensuing business loss is covered under the “Civil Authority” coverage section in Truck’s policy. 

In order to trigger coverage under their respective policies, plaintiffs in both lawsuits allege that COVID-19 causes direct physical loss and damage to property. In addition, in order to trigger coverage under the Civil Authority sections, plaintiffs allege the closure orders constitute prohibition of access to their insured properties. The allegations raised in these lawsuits are instructive for the creative arguments being made by plaintiffs’ counsels to trigger coverage for loss due to a pandemic, which may be excluded under some commercial insurance policies.  

We will continue to monitor these and other similar lawsuits across the country as part of our ongoing effort to keep abreast of the latest developments involving COVID-19 and its impact on our insurer clients. If you have any questions or need further information, please contact Paul Schrieffer ([email protected]) or Ellin Lee ([email protected]).