Plaintiffs hope to consolidate restaurant suits over coverage

Lieff Cabraser Heimann & Bernstein LLP has entered the battle over business interruption coverage, as it filed suit for two restaurants that were denied coverage by insurers that claimed a "virus exclusion" in the policy.

The breach of contract complaint, filed Thursday in San Francisco County Superior Court for restaurants owned by chef Daniel Patterson, is one of a flurry of lawsuits by restaurants against their insurers in state and federal court that are adopting different arguments depending on the language of the insurance policies.

Insurers have consistently rejected claims filed by restaurants seeking business interruption coverage.

What is also unclear is whether the lawsuits will be consolidated, as several plaintiffs' attorneys hope, in coordinated state or federal proceedings.

Robert J. Nelson, a Lieff Cabraser partner who filed the lawsuit Thursday for New Restaurant Group LP and Alta Adams Restaurant Project LLC against Farmers Group Inc. and Mid-Century Insurance Co., said his firm "hopes to be leading that fight on behalf of plaintiffs in this state and across the nation."

He said the firm will file more lawsuits in the coming days and weeks on behalf of restaurants, citing several other would-be plaintiffs, and expects those cases to be consolidated in state and federal court.

Farmers spokeswoman Amy Hart said Friday the insurance company declines comment on matters in litigation.

Richard C. Giller, a partner with Pillsbury Winthrop Shaw Pittman LLP who represents policyholders against insurance companies, said state and federal courts may issue joint coordination orders that are limited to discovery but separate the cases based on the plaintiff and the specific language in the insurance policy.

"It's going to come down to policy wording," he said.

That will differ in each dispute. The Farmers policy with New Restaurant Group, which does business as Coi Restaurant, includes language the insurer said is a virus exclusion, according to the complaint.

Farmers "will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease," the complaint states, citing language in the insurance policy.

Nelson, however, said that language isn't sufficient to allow Farmers to avoid paying business interruption policies.

The restaurant closed due to an order by San Francisco city authorities in March, not because anyone working or dining at the restaurants had COVID-19, he argued. "The physical loss of use is the triggering event," Nelson said.

Other language in the policy uses "broader language," including exclusions for events, "however caused, arising directly or indirectly out of" disruptions caused by a war or insurrection.

"Defendants intentionally chose not to add a global pandemic to the above list concerning war and other catastrophes or add an express global pandemic exclusion," Nelson wrote in the complaint.

Other restaurants have sued over policies that do not include any language about a virus exception.

Nanci E. Nishimura of Cotchett, Pitre & McCarthy LLP sued The Hartford Financial Services Group Inc. last month for denying a business interruption claim by John's Grill, a San Francisco restaurant. John's Grill Inc. v. The Hartford Financial Services Group Inc. et al., CGC-20-584184 (S.F. County Superior Ct., filed April 15, 2020).

"As an initial matter, not all insurance policies have a virus exclusion," Nishimura wrote in an email. "But for those policies [that] do have a virus exclusion, a plaintiff restaurant or business will no doubt face a defense argument raising the virus exclusion as the purported exclusion was relied on when the defendant insurers' summarily denied claims for business interruption coverage in the first place."

Nishimura applauded the lawsuit, saying restaurants and other businesses are entitled to coverage for which they have paid premiums. She said it would be up to the Judicial Council panel to decide whether the state cases can be coordinated.