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Restaurants and Insurers Scramble to Determine Policy Coverage During COVID-19 Pandemic

April 9, 2020

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<p style="text-align: justify;">As some businesses remain closed in the midst of the COVID-19 pandemic, we will likely see more lawsuits arise between insurers and insureds regarding policy coverage. Restaurants across the US are restricted under civil orders. With the exception of takeout and delivery services, they are unable to bring in new business. Consequently, restaurant owners are turning to their insurance policies in search of relief in this time of uncertainty. On March 25, 2020, two critically acclaimed restaurants in Napa, California, The French Laundry and Bouchon Bistro, filed a <em><a href="https://www.wcmlaw.com/wp-content/uploads/2020/04/complaint.pdf">complaint</a> </em>against their insurance company and the Napa County Health Officer, Karen Relucio (“Relucio”), who issued the order to cease non-essential operations.<span class="Apple-converted-space"> </span></p>
<p style="text-align: justify;">Hartford Fire Insurance Company and Trumbull Insurance Company (hereinafter collectively “Hartford Fire Insurance”) provides coverage to The French Laundry, Bouchon Bistro, and other related entities (hereinafter collectively “French Laundry”) for property, business personal property, business income and extra expense, and additional coverage from July 8, 2019 to July 8, 2020. The Property Choice Business Income and Extra Expense Form is additional coverage for instances when the businesses are forced to close under Civil Authority. The policy also has a specific “Civil Authority” provision, which applies additional coverage for business income loss and other expenses incurred while out of possession under a civil order due to “a covered cause of property loss”. The policy provides coverage for direct physical property loss unless specifically excluded or limited. French Laundry alleged the policy contains a Property Choice Deluxe Form that extends coverage to instances like now when property loss is due to a pandemic.<span class="Apple-converted-space"> </span></p>
<p style="text-align: justify;">French Laundry argues Napa County’s civil order was “issued based on evidence of physical damage to the property”. At this time, the restaurants are required to remain shut down—with the exception of delivery and takeout—which has led to furloughing 300 employees. The complaint alleges any efforts by Hartford Fire Insurance to deny a claim for physical property loss and damage caused by Coronavirus is “a false and potentially fraudulent misrepresentation that endangers policyholders and the public”. Consequently, they seek a declaratory judgment stating the policy covers their losses.<span class="Apple-converted-space"> </span></p>
<p style="text-align: justify;">According to French Laundry, Hartford Insurance Company denies Relucio’s order prohibits French Laundry from accessing the premises; denies such a prohibition is the kind defined in their policy; denies the civil order triggers coverage simply because the virus is not a policy exclusion; denies the order and subsequent closure should extend coverage due to physical loss; and denies the policy either provides current and future coverage due to Coronavirus under the Civil Authority provision and/or provides business income coverage due to the alleged property loss. Thus, French Laundry seeks a declaratory judgment that the denied access falls within the parameters of the policy and the order triggers coverage during this viral pandemic. Additionally, they seek affirmation that the policy provides coverage during current and future civil closures due to the property loss caused by Coronavirus and entitlement to business income coverage.<span class="Apple-converted-space"> </span></p>
<p style="text-align: justify;">As the pandemic continues, more lawsuits will arise of a similar fact pattern. Here, we see the challenge between insurance companies who want to ensure covered claims match the policy language and insureds’ concerns about how these long-term closures will impact business. Unfortunately, as we are still unsure how long the COVID-19 pandemic will persist, we are left with more questions than answers.<span class="Apple-converted-space"> </span></p>
We will follow these and other cases for important developments.

Thanks to Gabrielle Outlaw for her contribution to this post.  For any questions or comments, please contact <a href="mailto:vterrasi@wcmlaw.com">Vincent Terrasi</a>.

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