California diner wins reversal of virus coverage loss

A longtime Southern California diner had its dispute with a Hartford Financial Services Group Inc. unit over COVID-19-related losses reinstated Wednesday after a state appeals court ruled a provision in its policy could provide coverage.

A three-judge panel of California’s Fourth Appellate District Court of Appeals said in Brooklyn Restaurants v. Sentinel Insurance Co. Ltd. that the pleadings of the owner of Harry’s Coffee Shop in La Jolla were enough to allow the case to proceed to determine if the provision and certain exclusions in the policy rendered coverage illusory.

“Consequently, this is one of those rare cases where we conclude an insured has adequately alleged a direct physical loss or damage under the subject policy, at least raising the specter of coverage under that policy,” the panel said.

Brooklyn Restaurants said its commercial property policy from Sentinel contained a provision that would provide coverage for losses resulting from a virus. Under Brooklyn’s interpretation of the policy, a covered physical loss included cleaning an area infected by the coronavirus, court records show.

Brooklyn sued Sentinel after the insurer denied coverage for losses resulting from government shutdown orders implemented in March 2020, claiming the physical presence of the virus at Harry’s fell within a virus endorsement in its policy. According to Brooklyn, the virus endorsement in the policy allowed it to recover the increased costs it incurred in removing the virus from the property. 

The Hartford unit moved for judgment on the pleadings, contending that a virus exclusion in the policy barred coverage for any losses. The trial judge agreed and dismissed the suit.

The appeals panel said in reversing the decision that the virus endorsement in Brooklyn’s policy distinguished the lawsuit from others that were dismissed because they only alleged the government shutdown orders or presence of the virus caused physical loss or damage.

Representatives for the parties did not respond to requests for comment.