The Supreme Court today granted review in John’s Grill, Inc. v. The Hartford Financial Services Group, Inc., where the First District, Division Four, partially published opinion found potential business interruption insurance coverage for losses a restaurant sustained in connection with the COVID pandemic. The court also told the Ninth Circuit it will answer the question the federal court asked in French Laundry Partners, LLP v. Hartford Fire Insurance Co., but it made that case a grant-and-hold for John’s Grill.
The John’s Grill opinion issued even though the parties had settled the case after oral argument. The appellate court there noted that insurance coverage for pandemic-related damages is a “rapidly evolving area of law.”
[March 31 update: The case is not moot. Craig Anderson reports in today’s Daily Journal that the settlement was contingent on the appeal being dismissed and was thus negated when the Court of Appeal issued its opinion.]
Although acknowledging that “a nearly uniform line of cases in California and across the country” has rejected insureds’ claims, and disagreeing with a number of federal district court rulings, Division Four said “[t]he twist in this case is that [the insurance carrier’s] policy has customized trigger-of-coverage language that is virus-specific.” It found significant that the policy “(1) contains an affirmative grant of coverage specifically for ‘loss or damage’ caused by a virus, and (2) a special definition of ‘loss or damage’ that includes ‘[d]irect physical loss or direct physical damage to’ property, but is broad enough to encompass pervasive infiltration of virus particulates onto the surfaces of covered property.” The appellate court also concluded a limitation on the virus coverage is “unenforceable under the illusory coverage doctrine.”
In French Laundry, the Ninth Circuit asked the Supreme Court to answer this question: “Is the virus exclusion in French Laundry’s insurance policy unenforceable because enforcing it would render illusory a limited virus coverage provision allowing for the possibility of coverage for business losses and extra expenses allegedly caused by the presence and impacts of COVID-19 at an insured’s properties, including the loss of business due to a civil authority closure order?”
Four weeks ago, the Supreme Court agreed to answer a different Ninth Circuit, COVID insurance question. Before that, however, the court had consistently avoided addressing those coverage issues that had arisen in state court cases — it denied petitions for review in at least three of those cases and denied a depublication request in a fourth. (See here.)