California appellate court rules for restaurant group in COVID case

Citing a communicable disease coverage extension, a California state appeals court overturned a lower court Thursday and ruled that a restaurant group was entitled to insurance coverage from an Allianz SE unit for its COVID-19-related business interruption losses.

West Hollywood, California-based Saddle Ranch Sunset LLC, which operates three restaurants in California and one in Arizona, sued Fireman’s Fund Insurance Co. for breach of contract and breach of the implied covenant of good faith and fair dealing after the insurer denied its COVID-19-related claims, according to the ruling by the California Court of Appeal in Los Angeles in Saddle Ranch Sunset LLC et al. v. Fireman’s Fund Insurance Company et al.

A three-judge appeals court panel cited the restaurant group’s communicable disease coverage extension in overturning the lower court.

“Fireman’s Fund’s central argument is that plaintiffs cannot allege that they suffered direct physical loss or damage,” the ruling said.

The coverage extension said Fireman’s Fund would pay for costs incurred to tear out and replace property; repair and rebuild property; and “mitigate, contain, remediate, treat, clean, detoxify, disinfect, neutralize, clean up, remove, dispose of, test for, monitor and assess the effects of the communicable disease,” the ruling said.

In holding there is coverage under this extension, the panel cited two pro-policyholder 2022 state appeals court rulings involving Fireman’s Fund policies that it said had identical language: Amy’s Kitchen Inc. v Fireman’s Fund Insurance Co., and Marina Pacific Hotel & Suites LLC v. Fireman’s Fund Insurance Co.

The panel remanded the case to the lower court.

Fireman’s Fund attorney Brett Solberg, a partner with DLA Piper LLP in Houston, issued a statement that said, in part, “We are evaluating options for further proceedings.”

The appellate court “failed to recognize the entire definition of ‘location’ in the policy” and also failed “to properly consider the policy’s causal link requirement and misconstrued the policy requirement for direct physical or damage to property,” he said.

“The Court’s opinion is at odds with every other appellate decision in the country interpreting similar language, including the published decision in Amy’s Kitchen,” he said.

Plaintiff attorneys did not respond to a request for comment.