Business Interruption Coverage Suit in California

Oakland, CA – We previously offered an initial analysis of business interruption insurance because, as anticipated, it would become the forefront of COVID-19-related litigation. Unsurprisingly, business interruption coverage suits for coronavirus-related losses are already being filed, now in California.

In a first-of-its-kind lawsuit, on March 16, 2020, a New Orleans restaurant has asked a Louisiana state court to hold that its property and business interruption policy with underwriters at Lloyd’s of London will cover its losses due to government-mandated closures tied to the outbreak of COVID-19. Cajun Conti LLC v. Certain Underwriters at Lloyd’s, London et al., No. 2020-02558 (La. Dist. Ct., Orleans Parish Mar. 16, 2020) (complaint noting that subject policy requires existence of “direct physical loss” to property for coverage to apply).

It did not take long for businesses in California to do the same. On March 25, 2020, a pair of Napa Valley-based restaurants sued Hartford Fire Insurance Company in California state court, seeking a judicial declaration that the insurer must cover the restaurants’ losses due to government-mandated closures tied to the COVID-19 outbreak. Specifically, the restaurants claim entitlement to payment under the “civil authority” prong of their “all-risk” property policy with Hartford, which extends coverage for losses attributable to closures decreed by government authorities.

As alleged in the complaint, both restaurants were forced to close their doors and furlough 300 employees after Napa County’s health officer issued an order on March 18, 2020, that directs all nonessential businesses to cease activities amid the outbreak and cites evidence that COVID-19 causes physical damage to property. According to the complaint, such damage has occurred at properties in the “immediate area” of the restaurants, which is a requirement for civil authority coverage to apply. The restaurants also note that the policy does not contain an exclusion for a viral pandemic.

The case is French Laundry Partners LP v. Hartford Fire Insurance Company, et al., case number not immediately available, in the Superior Court for the State of California, County of Napa. It is important to note that these Napa Valley restaurants have sued for coverage without a denial of coverage by Hartford; businesses are not first waiting on their insurers to issue coverage determinations.

McDowell Hetherington continues to monitor the impact of the COVID-19 pandemic on litigation in California and throughout the country. For more information, please contact McDowell Hetherington attorneys Jodi Swick and Alec DiMario.