Restaurateur Sues The Hartford, Seeking Coverage for Coronavirus Business Interruption

March 27, 2020

A well-known California restaurateur has filed a lawsuit against a unit of The Hartford, seeking a declaration that the owner’s commercial insurance policy covers losses caused by a statewide business shutdown ordered to prevent the spread of coronavirus.

The lawsuit, filed Wednesday by the owner of the French Laundry and the Bouchon Bistro in the Napa Valley community of Yountville, follows a similar suit by the Oceana Grill in New Orleans against a Lloyd’s of London insurer. Both actions challenge an argument by insurance defense attorneys that business interruptions in reaction to the coronavirus are not covered losses under most business insurance policies.

As it happens, the same attorney who filed the Oceana Grill lawsuit — John Houghtaling II of Metairie, Louisiana — is assisting with the California lawsuit.

“To avoid payments for a civil authority shut down the insurance industry is pushing out deceptive propaganda that the virus does not cause a dangerous condition to property,” Houghtaling said in a press release. “This is a lie, it’s untrue factually and legally.”

French Laundry and Bouchon Bistro are both owned by Thomas Keller, whom Houghtaling said is the only chef to have been awarded simultaneous three-star ratings by Michelin guides for two different restaurants.

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Keller’s lawsuit says his policy with The Hartford Fire Insurance Co. does not have an exclusion for a viral pandemic. In fact, a “Property Choice Deluxe Form” in the policy extends coverage for a loss or damage due to virus. The suit says Keller’s KRM Inc. had to furlough 300 employees after shutting down the restaurants because of an order issued by the Napa County public health officer on March 18 allows take-out and delivery only.

The suit asks the Napa County Superior Court to declare that the order constitutes a prohibition of access to the restaurants and that it triggers coverage under the insurance policy.

A Native American tribe on Tuesday sued a group of insurance companies, asking a court to declare that losses it is incurring from shutting down its casinos during the coronavirus pandemic are covered by insurance. Among the defendants named in the lawsuit filed by the Chickasaw Nation in Oklahoma state court are several underwriters for insurance marketplace Lloyd’s of London, a unit of American International Group Inc. and XL Insurance America, now part of AXA SA.

Houghtaling said in a press release that restaurants across the United States are struggling because of the coronavirus.

“This entire sector is crippled by a nationwide public health shutdown impacting countless livelihoods,” he said. “We need insurance companies to do the right thing and save millions of jobs.”

Houghtaling said his first lawsuit in Louisiana was triggered in part by a March 12 article written by Shannon O’Malley, a partner with Zelle law firm in Dallas. She wrote that insurance policies that cover business-interruption expenses generally require a physical loss to trigger coverage, and that physical loss can’t be based merely on a supposition that coronavirus might be present.

She said even coverage that applies specifically to orders by civil authorities is contingent on actual physical property damage, not just the fear of contagion. O’Malley said: “unless the insured can prove that an order of civil authority was directly due to property damage at or near the insured’s location, the policy’s civil authority provision should not apply.”

The Hartford had no comment on the lawsuit. The property/casualty insurance industry has been mostly united behind the defense that most business interruption policies exclude coverage for pandemics and require physical damage to occur on the site.

Sean Kevelighan, president and CEO of the Insurance Information Institute (III), told regulators recently that while there is now pressure for insurers to cover business interruption resulting from a pandemic, insurers have investigated and modeled pandemic scenarios as they do other catastrophes and found it is not feasible to underwrite the risk in a way policyholders would be able to buy.

“It is important to appreciate that as much as this is a catastrophe of historic magnitude, there are more on the horizon—hurricanes, wildfires, floods—and we must remain prepared in the way that we have long-planned, so again, we can continue act as the financial first responder that we have been for several centuries,” Kevelighan stated.

David Sampson, president and CEO of the American Property Casualty insurers, said that it is important to defeat efforts to “imposed retroactive coverage.” He stressed that the current surplus funds and loss reserves of the industry are there to pay claims under policies as they have been underwritten and not to pay claims not anticipated. Sampson said business interruption issues are at such a scale in this pandemic that a federal solution is needed.

“I’m sorry to tell you up front, but the short simple answer is, no, there is no coverage. The longer answer is a bit more complicated, even though the ultimate answer is the same – no coverage,” wrote Christopher Boggs, in his Big I Insights blog this week, writing for insurance agents whom he said are being asked regularly by their clients if there is coverage. Boggs is executive director, Big I Virtual University of the Independent Insurance Agents and Brokers of America.

About the photo: The French Laundry restaurant in Yountville, Calif. Photo courtesy of Thomas Keller Group.