The coronavirus pandemic has pushed restaurants into the biggest challenge they’ve ever faced. While some restaurants have pivoted successfully to takeout and delivery, others are on the brink of closure. Even well-known national chains like The Cheesecake Factory have been vocal about their inability to pay rent and cover basic overhead costs.
Virtually every single one of these restaurants took out a business insurance policy with business interruption coverage for this very reason. Business interruption coverage, or also referred to as business income coverage, is supposed to help businesses recover financially when they’re forced to close for reasons out of their control. But insurance companies are denying COVID-19 business interruption claims and failing their policyholders when they need help the most.
Insurance companies are saying they can’t pay claims because insurance isn’t intended to cover disease-related losses that affect the majority of their policyholders at once. American Property Casualty Insurance Association CEO and President David A. Sampson said in a statement that insurance companies can’t pay for coronavirus claims because it could jeopardize their ability to pay for losses caused by other disasters, like hurricanes and wildfires.
But restaurant owners around the country are rightfully wondering why they’ve been paying for insurance coverage if their claims are being denied when they need it most—and an increasing number of restaurateurs are using the legal system to fight back. Restaurants around the country have filed lawsuits against their insurers for breach of contract, a common form of insurance bad faith. Here are just a few of the restaurants that have taken their fight to the courts:
In-N-Out: So far, In-N-Out is the only fast food restaurant to file a lawsuit for breach of contract against its insurance company. The beloved West Coast chain filed suit against Zurich American Insurance Company on May 29 in the Central District of California, saying the insurance company wrongfully denied its claim. In-N-Out argues that its $250 million policy should cover coronavirus-related losses because it’s an “all-risk” policy.
There is no exclusion for pandemics or viruses, and the policy includes language saying it covers “unknown and novel risks that may arise which were not previously considered.” Although In-N-Out’s drive-thrus have remained open and dine-in service is restarting, the company says it still suffered significant losses while dining rooms were closed and stay-at-home orders were in place.
Legal Sea Foods: On the other side of the country, seafood chain Legal Sea Foods says it experienced a similar wrongful denial from its insurance company, Strathmore Insurance. Like In-N-Out, Legal Sea Foods has an “all-risk” policy that does not specifically exclude losses related to a pandemic and leaves the door open to cover a variety of unforeseen risks. The company says its claim should be covered particularly because its last policy was issued on March 1.
Strathmore was certainly aware of the coming pandemic at that time, yet the insurance company did not add any language to the policy, excluding risks related to infectious diseases. The Boston-based restaurant, which temporarily closed all 34 of its locations on the East Coast, filed a lawsuit against Strathmore in U.S. District Court in Boston on May 4.
Oceana Grill: Oceana Grill, a Bourbon Street institution popular with New Orleans tourists, was the first restaurant that sued its insurance company for denying its coronavirus-related claim. The restaurant’s parent company, Cajun Conti, filed a complaint against Lloyd’s of London way back on March 16, the same day all restaurants in Louisiana were forced to close. It’s safe to assume Oceana Grill filed a lawsuit so quickly because Lloyd’s of London denied its claim immediately without any consideration, which corresponds with many other restaurants’ experiences.
The complaint states that Oceana Grill’s claim is valid because the coronavirus contaminates surfaces, which is a form of property damage that should be covered by business interruption insurance. In the meantime, while the restaurant waits for a decision from Orleans Parish Civil District Court, Louisiana may enact legislation ordering insurance companies to pay out COVID-19 claims. New York, New Jersey, Massachusetts, Ohio, Pennsylvania, and South Carolina are considering similar legislation.
Musso & Frank (and other independent Los Angeles restaurants): Hollywood’s oldest restaurant, Musso & Frank Grill, has also filed a lawsuit against its insurer for a wrongful denial of its claim. The restaurant filed a complaint for breach of contract against Mitsui Sumitomo Insurance USA in the Central District of California on April 21. Musso & Frank is arguing that, since no COVID-19 cases have been linked to the restaurant, it was forced to close solely due to a government order—a type of loss that is covered under the civil authority clause included in virtually all business insurance policies. Other well-known Los Angeles restaurants have followed Musso & Frank’s lead: Bob’s Big Boy, Pez Cantina, Fred 62, and Cole’s French Dip have all filed complaints against their insurance companies in the hopes of getting their claims paid.
The French Laundry: In Northern California, chef Thomas Keller was forced to close his famous Napa restaurant The French Laundry completely, since there was no way he could make his Michelin-star meals takeout friendly. His other properties in Las Vegas, Miami, and New York—Bouchon Bakery, Per Se, TAK Room, and the Surf Club, among others—had to take similar measures. Despite the complete closure, Hartford Fire Insurance denied Keller’s claim, saying there were “no dangerous conditions” that caused the restaurant to close. Keller has filed a lawsuit in Napa County Superior Court and is waiting for the court to decide whether his insurance company (which he has paid $15 million over the years) should cover his losses related to Covid-19.