The coronavirus pandemic has affected virtually every business in America, but none more so than restaurants. Restaurants and other food businesses, like bars, coffee shops, and bakeries, typically carry significant debt and need steady cash flow to stay afloat.
It was bad enough when these businesses were forced to close due to stay-at-home orders. Now their insurance companies are denying their claims related to coronavirus damage and losses. Restaurants spend thousands or even millions of dollars on business interruption insurance, and now when they need it most, insurance companies are refusing to pay up.
Restaurants aren’t taking these denials sitting down, however. Food businesses around the country, ranging from small mom-and-pop shops to large chains, are filing lawsuits against their insurance companies to compel them to cover their claims. The number of lawsuits is only going to increase as the pandemic rages on, and more insurance companies issue wrongful denials.
It’s yet to be seen how courts will decide these cases, but from our experience, we believe many business insurance companies are improperly denying claims. If the effects of a global pandemic and forced closure don’t constitute a loss, what does it do? We’re watching the following cases closely to see whether the courts agree:
In-N-Out: The iconic Irvine, California-based fast-food chain sued its insurer, Zurich American Insurance Company, for breach of contract on May 29. Like other restaurants in California, In-N-Out was forced to close its dining rooms on March 17, with locations in other states following suit shortly after that.
Although drive-thrus remained open, In-N-Out still took a significant financial hit because of the partial closure and lockdown. According to the lawsuit, the company has a $250 million “all-risk” policy with Zurich, which covers “unknown and novel risks that may arise which were not previously considered by the company, Zurich or by the public at large.”
This policy does not include an exclusion for viruses or infectious diseases, so there is no clear reason why Zurich denied In-N-Out’s claim. The lawsuit is pending in the Central District of California Court.
Thomas Keller’s French Laundry, Per Se, and Bouchon Bakery: Chef Thomas Keller is one of America’s most famous fine-dining restaurateurs, but even his business was not immune to Covid-19. Thomas Keller Restaurant Group properties in Yountville, New York, Las Vegas, and Miami were forced to close. Yet the restaurant group’s insurance company, Hartford Fire Insurance, denied its business interruption claim. Keller filed a lawsuit against Hartford Fire Insurance in late March, requesting that the Superior Court of California - County of Napa decide on whether his business interruption policy allows him to recover for coronavirus losses.
Per the lawsuit, Hartford denied the claim on the grounds that there were “no dangerous conditions” at the restaurants. Keller is understandably frustrated that the claim was denied, considering that his company has paid about $15 million for business interruption insurance over the years.
Legal Sea Foods: On the East Coast, Boston-based seafood chain Legal Sea Foods is suing Strathmore Insurance for denying its business interruption claim. The company was forced to shut down dine-in service at each of its 34 locations in Massachusetts, Pennsylvania, New Jersey, Rhode Island, Virginia, and Washington, D.C. Legal Sea Foods says that its “all-risk policy” should cover the effects of the coronavirus lockdown, as the policy had no pandemic exclusion.
In fact, Strathmore issued the policy to Legal Sea Foods on March 1, when the insurance company was well aware Covid-19 was making its way through China, Italy, and other parts of the world. Strathmore still did not include any language in the policy, excluding viruses or pandemics. Legal Sea Foods filed suit in U.S. District Court in Boston on May 4.
Texas Independent Restaurants: Insurance companies are denying claims from restaurants of all sizes, but it may be even harder for small and independent restaurants to bounce back. Dallas fine dining establishment Salum is one independent restaurant that took a hit from the pandemic. Travelers Indemnity Company denied the restaurant’s business interruption claim, and now Salum is suing Travelers to get its losses covered. Houston restaurant group Ybarra Investments, which operates Gringo’s Mexican Kitchen, Jimmy Changas, and The Lunch Box, has filed a similar lawsuit against its insurer, Scottsdale Insurance Company. Like other insurance companies, Travelers and Scottsdale seem to be issuing blanket denials to all restaurant policyholders, claiming that their business interruption policies do not cover damage caused by bacteria and viruses.
Oceana Grill: Oceana Grill, a tourist staple in New Orleans’ French Quarter, was the first restaurant to file a lawsuit against its insurance company in the wake of the coronavirus pandemic. The restaurant, under its parent company Cajun Conti, filed suit against Lloyd’s of London in Orleans Parish Civil District Court on March 16, the same day Louisiana forced all restaurants to close. According to the lawsuit, Oceana Grill is arguing that the coronavirus has caused property damage because it contaminates surfaces. Therefore related losses should be covered under its business interruption policy. Time will tell whether the court will side with Oceana Grill, but some local and state governments are trying to support their restaurants in the meantime. New Orleans Mayor LaToya Cantrell specifically included the phrase “coronavirus causes property loss and damage in certain circumstances” in the emergency declaration that closed restaurants, hoping that it would help restaurants filing claims with their insurance companies. Alongside eight other states, Louisiana has also introduced legislation that would require insurance companies to cover coronavirus-related claims.
Learn Your Options If Your Business in Texas Was Wrongfully Denied Business Disruption Insurance during COVID-19