Decision in John's Grill case sets new precedent for insurance policyholders
A newly published decision by California's Court of Appeal in a case brought by San Francisco's John's Grill represents a major win for businesses over insurers in the Covid era.
On Tuesday, the Court of Appeal released a 40-page decision in John's Grill Inc. vs. Hartford Financial Services Group that sided with the restaurant's demand for compensation under a business interruption insurance product it bought from a Hartford affiliate, Sentinel Insurance Co. The policy specifically mentioned coverage for virus-related interruptions, but the insurer refused to compensate the restaurant for time it had to shut down relating to Covid.
The decision reverses the consensus of previous California federal courts, which decided the issue in favor of Hartford.
Andrew Kirtley, part of the team of lawyers representing John's Grill in the case for Cotchett, Pitre & McCarthy LLP, said the new ruling has implications for potentially thousands of businesses around California. He said it establishes a strong precedent for future cases challenging denied claims under that specific Hartford-affiliate policy as well as those seeking relief under insurance policies such as commercial, residential, or third-party liability insurance, which a court could ultimately rule are “illusory” or virtually impossible to satisfy.
"This is huge for any policyholder in California whose coverage was denied because the coverage they thought they had turned out to be illusory," Kirtley told me.
Hartford argued that John's Grill didn't satisfy all of the conditions of the virus-related interruption policy. Siding with John's Grill, the appellate court, however, found issue with the policy's language and the limited "oddball scenarios" under which it could apparently be satisfied.
"The test for illusory coverage must focus on objective reality and the insured's reasonable expectations of coverage," wrote the court. "Insurers cannot take in premium for a coverage grant that names a specifically covered risk — here virus contamination — and then justify denying coverage for it under all circumstances because some other risk may be covered under the same coverage grant."
In an emailed statement Hartford said it was "disappointed" in the ruling, which it said sends the case back to trial court and allows John's Grill to amend its original complaint.
"We continue to believe there is no coverage for this exposure and will vigorously defend our position," the insurance company wrote. "Unfortunately, viruses are generally outside the scope of business interruption coverage. These policies do not cover this exposure and, accordingly, premiums were never collected for it."
John's Grill brought its original case against Hartford in April 2020. Owner John Konstin estimated to the San Francisco Chronicle that the 114-year-old restaurant incurred losses of about $20 million for about 220 days of closure between March 2020 and March 2021.
Kirtley described the journey to the appellate court's ruling as a two-and-a-half-year process of rejections from a number of federal district judges that sided with Hartford.
"You think, am I losing my touch here? But you just got to press on," he said. "You're fortunate when you get an opinion that absolutely vindicates everything that you've been arguing."
The court's decision, however, will not have an impact on past cases involving similar policy language unless those cases meet the statute for a motion to reconsider, said Doug Rawles, a partner at global Pittsburgh-based law firm Reed Smith — which has filed amicus briefs around the country for Covid-19 business interruption lawsuits.
The case does, however, "set down another marker for policyholders, and provides course correction for courts analyzing similar terms and conditions," Rawles said.
John's Grill had already notified the court it had reached a settlement with Hartford for a "substantial" but undisclosed amount. That alone represented a rare victory for businesses in similar insurance litigation cases prompted by the pandemic around the country, which have been denied business insurance claims on the premise that damage to a business from government public health policy isn't the same as damage from the spread of the virus itself. (To read the entire article, please click HERE)