Key Takeaways

• Additional first-party property lawsuits have been filed by restaurants in California and Illinois seeking coverage for losses resulting from closure orders

• Lawsuits contend coverage is afforded under the property policies since the direct physical loss requirement is satisfied and the policies do not have virus or bacteria exclusions

• One Illinois lawsuit illustrates the danger of denying coverage without an investigation because plaintiffs contend the insurer’s blanket denials of coverage constitute bad-faith conduct

• Another Illinois lawsuit is the first putative class action against an insurer for denying COVID-19 claims

Restauranteurs filed three new coverage lawsuits in Napa County Superior Court and the U.S. District Court for the Northern District of Illinois, alleging the wrongful failure to pay COVID-19-related losses. Since the hospitality industry has been acutely affected by the COVID-19 pandemic, these lawsuits come as no surprise.

Overview: French Laundry, Big Onion, and Billy Goat

In French Laundry Partners, LP et al. v. Hartford Fire Insurance Co. et al. (Napa County), Big Onion Tavern Group, LLC et al. v. Society Insurance Company (N.D. Ill. No. 1:20-cv-2005), and Billy Goat Tavern I et al. v. Society Insurance (N.D. Ill. No. 1:20-cv-2068), the plaintiffs seek coverage under their respective policies for losses as a result of closure orders issued by the Napa County Health Officer and the Governor of Illinois, respectively. Since direct physical loss is generally required under first-party property policies, the plaintiffs in the suits go to great lengths to plead direct physical loss or damage to their property. For instance, in French Laundry, the plaintiffs allege coronavirus “physically infects and stays on surfaces of objects or materials,” noting that certain countries have “implemented the cleaning and fumigating of public areas prior to allowing them to re-open publicly due to the intrusion of microbials,” and the Napa County stay-at-home order was “issued based on evidence of physical damage to property.” The plaintiffs in Big Onion make similar assertions. The class representative in Billy Goat alleges that COVID-19 “rendered the covered property at the premises … unsafe and inaccessible for dine-in customers.” Notably, the policies at issue in French Laundry, Big Onion, and Billy Goat allegedly do not contain virus exclusions.

Separately, in Big Onion, the plaintiffs, who do not appear to share any connection other than that they purchased insurance policies from the same insurer, contend their insurer engaged in bad-faith claims-handling by issuing blanket denials for losses related to the closure orders, often within hours of receiving the claims and without first conducting any meaningful investigation, as required under Illinois law. Moreover, it is alleged the CEO of the insurer circulated a memorandum to its agency partners indicating the insurer would likely not provide coverage in connection with losses caused by government-imposed shutdowns due to COVID-19.

Then, the Billy Goat plaintiffs seek to certify a class of policyholders of one insurer who “offer[ ] food or beverages for on-premises consumption,” whose policies included a particular form, who made a claim for lost business income as a result of COVID-19 and Governor Pritzker’s Executive Orders, and whose claims the insurer denied. The Billy Goat plaintiffs seek declaratory relief, in addition to compensatory and punitive damages, the imposition of a constructive trust, and more.

Claims-Handling Takeaways and Class-Action Forecast

As with the first coverage lawsuit filed in Louisiana, policyholders are focused on satisfying the direct physical loss requirement by the mechanics of how coronavirus rests on surfaces. But, policyholders’ plan to prove physical loss or damage by the mere presence of microbes has yet to be seen. In addition, the claims-handling allegations in Big Onion illustrate the importance in this unprecedented situation of regular communication with insureds and a diligent investigation into each claim. And, given the sheer number of policyholders whose businesses have been adversely affected by governmental orders attempting to minimize the spread of COVID-19, the Billy Goat putative class action will certainly not be the last attempt to organize large numbers of policyholders in actions against insurers.

For more information, contact:

• Jonathan L. Schwartz
• Larry D. Mason
• Colin B. Willmott
• Any member of our Coronavirus Coverage Team
• Or the co-chairs of Goldberg Segalla’s Global Insurance Services practice, David L. Brown and Jeffrey L. Kingsley