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Thomas Keller sues restaurant insurer over coronavirus business-interruption coverage, a plight many are discovering

Celebrity chef Thomas Keller, owner of Napa Valley’s exclusive The French Laundry, has become the latest high-profile face in a growing nationwide chorus of restaurateurs, hoteliers and operators of wine tasting rooms and casinos upset that their business-interruption insurance claims are being denied during the current coronavirus shutdown.

Thomas Keller Restaurant Group sued The Hartford in Napa County Superior Court on March 25, asking for a declaratory judgment on whether the insurer can deny business-interruption coverage for losses suffered during the COVID-19 outbreak, the restaurant group said in a news release.

A growing number of state and local governments since mid-March have taken the unprecedented step of ordering all but “essential business” to shut down and residents to stay home in a desperate attempt to slow the spread of the respiratory virus. Keller’s lawsuit claims The French Laundry and Bouchon Bistro, both in Yountville, furloughed over 300 employees after Napa County’s shelter order was issued March 18, according to trade publication Business Insurance.

This case joins a couple of other high-profile lawsuits against carriers for denying business-interruption claims from COVID-19 shutdown orders, including a New Orleans restaurant and the Chickasaw Nation for a shuttered Oklahoma casino.

The attorney Keller hired to represent him, John Houghtaling of New Orleans-based Gauthier Murphy Houghtaling, accused insurers of misleading policyholders in why they are denying these claims.

“To avoid payments for a civil authority shut down the insurance industry is pushing out deceptive propaganda that the virus does not cause a dangerous condition to property,” said John Houghtaling in the news release. “This is a lie, it’s untrue factually and legally. The insurance industry is pushing this out to governments and to their agents to deceive policyholders about the coverage they owe.”

But two features common to business-loss coverage are requirements to show “direct physical damage” to the premises for a covered cause of loss and a specific exclusion for certain contagions, according to insurance experts. Whether that damage can be claimed from the presence of the pandemic in a certain radius of the covered premises remains a matter of legal conjecture and court wrangling, but the exclusion is more difficult for policyholders to shake.

“Most policies have virus or bacteria exclusions,” said Debra Costa, leader of the wine practice at Heffernan Insurance Brokerage. Whether those will hold is a matter for claims adjusters, attorneys and courts to decide, as brokers serve insured customers by filing claims, she said.

After the 2003 outbreak of severe acute respiratory syndrome (SARS) - caused by another coronavirus, killing 774 - that exclusion started to be a common exclusion in the business-interruption portion of commercial property policies, she said.

Insurance Services Office, an analytics and standards service for the property and casualty insurance industry, in mid-2006 filed with state regulators for this exclusion.

Businesses in the North Bay and throughout Northern California ran into another sobering policy exclusion during Pacific Gas & Electric Co.’s public safety power shutoffs last fall. Multiple planned blackouts in September, October and November were intended to keep wildfires from igniting during high winds, and left up to 2 million customers in dozens of counties in the dark for days at one point.

Amid the blackouts in late October, the Kincade Fire erupted in northeast Sonoma County, leading to a mandatory evacuation of nearly 190,000 residents in multiple cities, towns and communities in the north half of the county. Businesses found that their claims for fire damage and business losses from restricted access - mentioned in policies as “civil authority” action - to evacuation and burn zones were covered, but claims for lost income during the outages weren’t.

“Fire is a clear covered cause of loss in many policies, along with wind and hail damage, but not (business losses) when the utilities and public resources go down,” Costa said.

The California Department of Insurance has been fielding inquiries from “has heard from numerous businesses that are facing enormous losses due to statewide and local public health ‘shelter in place’ directives,” Michael Soller, deputy insurance commissioner, wrote to the Business Journal in an email. He said that Insurance Commissioner Ricardo Lara plans to work with Gov. Gavin Newsom, the Legislature, local leaders and the insurance industry on “creative state-level solutions.”

“Whether or not business interruption policy coverage applies, the insurance industry should work with us during this unprecedented crisis to stabilize our state’s businesses and keep workers employed,” Soller wrote.

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