Calif. court: Insurance policy can't cover eatery's COVID closure
The high court raised doubts about the reach of the illusory coverage doctrine.
Owners of a San Francisco restaurant had no reason to expect their insurance to pay for pandemic-related losses even though their policy included coverage for virus-caused damages, California’s Supreme Court unanimously held Thursday.
Related: Lessons learned from adjusting long COVID insurance claims
In a 27-page opinion, the court said John’s Grill’s property insurance, specifically its “limited fungi, bacteria or virus coverage,” only offered payouts for virus contamination caused by a small set of circumstances, including fire or a windstorm. That coverage by Sentinel Insurance Co. did not extend to economic losses caused by the eatery’s government-ordered COVID-19 closure, the court concluded.
“The policy’s limitations on coverage were explicit and unambiguous,” Chief Justice Patricia Guerrero wrote. “Absent some extraordinary circumstance, courts must enforce such explicit and unambiguous policy limitations. John’s Grill has not shown any such extraordinary circumstances exist here.”
John’s Grill’s attorneys at Cotchett, Pitre & McCarthy argued that the policy’s language on viruses violated the illusory coverage doctrine because its extensive restrictions rendered the policy effectively meaningless. In December 2022, the First District Court of Appeal agreed and allowed the restaurant’s claims to proceed.
The California Supreme Court, however, has never recognized an illusory coverage doctrine “as such” and it doesn’t appear in any precedents, Guerrero wrote.
“But even assuming some version of the doctrine may exist under California law, we conclude that an insured must make a foundational showing that it had a reasonable expectation that the policy would cover the insured’s claimed loss or damage,” Guerrero continued. “Here, however, John’s Grill has … failed to establish that the policy created the illusion of coverage that rendered any contrary policy language unenforceable.”
During the case’s appeal to the First District, John’s Grill and its insurer reached a settlement. The court of appeal and, later, the state Supreme Court declined to dismiss the case, noting that it raised an issue of “continuing public interest.”
State and federal courts around the country have grappled with hundreds of COVID-related property damage and business interruption suits since the pandemic erupted in 2020, with many rulings siding with insurers. Thursday’s opinion by California’s highest court follows another COVID insurance ruling in May in which the justices held that the mere presence of SARS-CoV-2 at a business does not automatically trigger property loss coverage.
John’s Grill v. The Hartford Financial Services Group attracted amicus briefs from restaurant groups and insurance policyholder advocates on behalf of John’s Grill and the American Property Casualty Insurance Association submitted a brief in support of Hartford.
Hartford was represented by Complex Litigation Appellate Group.
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