Writing about the Supreme Court’s May decision in Another Planet Entertainment, LLC v. Vigilant Ins. Co. (2024) 15 Cal.5th 1106, we said the court had “substantially curtail[ed], but [did] not shut the door to, many businesses’ ability to recover insurance benefits for losses sustained during the COVID pandemic.” In John’s Grill, Inc. v. The Hartford Financial Services Group, Inc., the Supreme Court today closes off another avenue of relief for pandemic damages. (Please excuse the mixed metaphors.)
The court’s unanimous opinion by Chief Justice Patricia Guerrero finds unavailing a claim under a San Francisco restaurant policy’s “Limited Fungi, Bacteria or Virus Coverage” endorsement, which the court describes as “generally exclud[ing] coverage for any virus-related loss or damage that the policy would otherwise provide, but . . . extend[ing] coverage for virus-related loss or damage if the virus was the result of certain specified causes of loss, including windstorms, water damage, vandalism, and explosion.” The court says the endorsement’s “clear and unambiguous” terms preclude coverage and it rejects the restaurant’s argument that the “illusory coverage doctrine” nonetheless supports the benefits claim.
The court says it “has never recognized an illusory coverage doctrine as such,” but, even if it exists, “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.” The restaurant showed neither a reasonable expectation of coverage nor that the promised coverage was illusory, the court concludes. The opinion states that “the policy offered [the restaurant] a realistic prospect for virus-related coverage,” such as if food were contaminated by a virus. The restaurant “cannot invoke the illusory coverage doctrine to transform the policy’s limited virus-related coverage into unlimited virus-related coverage.”
The court said it was deciding the issues on the merits “even though they are technically moot” because of a settlement. However, a Daily Journal report when the court granted review said the case was not moot because the settlement was contingent on the appeal being dismissed and was thus negated when the Court of Appeal issued its opinion.
The court reverses the First District, Division Four, Court of Appeal’s partially published opinion. Also, the court disapproves the Fourth District, Division One, decision in Brooklyn Restaurants, Inc. v. Sentinel Ins. Co., Ltd. (2024) 100 Cal.App.5th 1036, which is a recent grant-and-hold for John’s Grill (see here).
More about the case here.