COVID 'losses' count for insurance coverage, SF court rules – San Francisco Chronicle

Downtown San Francisco is seen mostly empty in February, 2021, during pandemic lockdown times. A California appeals court says COVID harms should not be automatically ruled out by insurers as financial losses for coverage.
Businesses in California that had to close during COVID-19 lockdowns have been repeatedly denied coverage for their losses by insurers and the courts. But one policy widely issued by Hartford Insurance expressly covers some virus-caused harms, and a state appeals court says it can apply to a San Francisco restaurant’s revenue losses.
Typical property-damage policies cover businesses for financial losses caused by “direct physical loss of or damage to (their) property.” Nearly all state and federal courts in California, and elsewhere, that have considered the issue have upheld insurers’ denial of coverage, concluding that the business establishments suffered no physical harm to their property from the presence of the coronavirus.
However, the policy issued by Hartford subsidiary Sentinel Insurance to John’s Grill in downtown San Francisco explicitly covered loss or damage caused by “fungi, wet rot, dry rot, bacteria or virus.” While the policy also contained a number of exemptions, which Sentinel argued would deny coverage to John’s Grill, the First District Court of Appeal ruled Tuesday that a restaurant can be eligible for coverage under the terms of the policy.
“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 of claimed exemptions, Justice Jon Streeter said in a 3-0 rulingreinstating the lawsuit, which a judge had dismissed. “Under California law we are concerned with giving an affirmative grant of coverage its fullest reach,” resolving ambiguous language “in accordance with the reasonable expectations of the insured,” Streeter said.
In an unusual twist, John’s Grill settled its case with its insurer two weeks ago, on confidential terms, after the court heard arguments in the case, which means it will not benefit financially from the reinstatement of its suit. But the ruling was celebrated by the restaurant’s owner, John Konstin, and his lawyers.
“John’s Grill pursued this case to set the bar for all restaurants in the state of California,” Konstin said in a statement. “I am hopeful that other family-owned businesses are able to benefit.”
Attorney Brian Danitz said many businesses in the state have identical policies from Hartford, and federal courts, interpreting California law, have denied coverage for COVID-related losses under those policies.
“This case clarifies California law and makes a big difference in how the law will be interpreted,” said Danitz, a lawyer with the firm Cotchett, Pitre & McCarthy.
Suzanne Barlyn, a Hartford spokesperson, said the company was disappointed by the ruling and “will vigorously defend our position….These policies do not cover this exposure and, accordingly, premiums were never collected for it.”
The insurer could seek review by the state Supreme Court, which has denied appeals of lower-court rulings in favor of insurers but has not yet issued a ruling of its own on coverage for COVID business losses. That could change, however, because of a request by a federal appeals court in a separate case.
That case involves Another Planet Entertainment, a concert promoter, which had to cancel events in 2020 and was denied coverage by Vigilant Insurance Co. under the standard policy applying to physical loss or damage to property. A federal judge in San Francisco dismissed the suit by Another Planet, but a panel of the Ninth U.S. Circuit Court of Appeals filed a request with the state Supreme Court on Wednesday to review the case and clarify the issue under California law. The court usually grants such requests, and it could also consolidate the case with the dispute over John’s Grill if the insurance company appeals Tuesday’s ruling.
John’s Grill closed its doors in March 2020, in response to San Francisco’s shutdown orders, and laid off 54 employees. The restaurant reopened in August 2020, closed again in December after a surge of virus cases, and reopened in March 2021, a combined closure of 220 days. Kostin estimated the company’s losses at $20 million.
Sentinel argued, and Superior Court Judge Ethan Schulman agreed, that the insurance policy covered only virus-related losses from causes that were spelled out in the policy, none of which were claimed by John’s Grill. But the appeals court said the company’s argument, if accepted, would effectively nullify virus coverage that was offered in the policy and paid for by the restaurant.
“We believe a reasonable insured would also have an expectation of coverage,” Streeter wrote, “for the resulting loss of its ability to use the restaurant for its intended purpose.”
Bob Egelko is a San Francisco Chronicle staff writer. Email: begelko@sfchronicle.com Twitter: @BobEgelko

Bob Egelko has been a reporter since June 1970. He spent 30 years with the Associated Press, covering news, politics and occasionally sports in Los Angeles, San Diego and Sacramento, and legal affairs in San Francisco from 1984 onward. He worked for the San Francisco Examiner for five months in 2000, then joined The Chronicle in November 2000.
His beat includes state and federal courts in California, the Supreme Court and the State Bar. He has a law degree from McGeorge School of Law in Sacramento and is a member of the bar. Coverage has included the passage of Proposition 13 in 1978, the appointment of Rose Bird to the state Supreme Court and her removal by the voters, the death penalty in California and the battles over gay rights and same-sex marriage.

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