Calif. Co. Can't 'Wriggle Out' Of Exclusion In COVID-19 Suit

By Mike Curley
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Law360 (October 23, 2020, 2:10 PM EDT) -- A California federal judge threw out a bid from a Palo Alto "startup incubator" to secure business loss coverage stemming from the COVID-19 pandemic, criticizing the company's attempt to "wriggle out" of a virus exclusion that bars coverage.

In a short order filed Thursday, U.S. District Judge Vince Chhabria said that even if, for the sake of argument, Founder Institute Inc.'s claim to Hartford unit Sentinel Insurance Co. for loss of income due to state shelter-in-place orders to prevent the spread of the virus would be covered, it falls clearly within a virus exclusion in the policy.

Founder sued Sentinel and Hartford Fire Insurance Co. earlier this year, claiming like many other businesses that the insurer had, in bad faith, denied coverage for business interruption resulting from shutdown orders intended to stem the tide of COVID-19.

According to Thursday's opinion, Founder had tried to get around the virus exclusion by re-labeling its loss. Rather than say it shut down because of a risk of virus exposure, Founder focused on "respiratory droplets" on the building's surfaces.

The company had argued that the droplets, rather than the virus itself, are the real focus of the shutdown orders and, therefore, the focus of the damage and loss, and that the virus exclusion does not include the droplets.

Judge Chhabria was unconvinced.

"But even assuming the validity of this contorted characterization of the purpose behind the shelter-in-place orders, Founder has merely come up with a different way of describing the same thing: the ordinances sought to prevent COVID-19 from spreading," the judge wrote.

While Founder cited another case involving a Florida gynecologist in which the court denied a motion to dismiss based on the same virus exclusion, Judge Chhabria said that case didn't cite anything to support a conclusion that a business shutdown resulting from a pandemic falls outside a virus exclusion.

The judge did, however, grant Founder leave to amend its claim against Sentinel, though he added it seems unlikely that Founder will be able to state a claim. The judge dismissed claims against Hartford Fire Insurance specifically, though, finding that because Hartford is not a party to the insurance policy, Founder has no standing to sue the insurer.

"We knew when we took on these cases that we had a steep uphill battle but a battle worth fighting," Sanjiv N. Singh of Sanjiv N. Singh PLC, representing Founder, told Law360 on Friday. "There are federal and state courts in other parts of the country who have aligned more with our views. I think that these questions may have to be litigated at the appellate level."

Representatives for Hartford and Sentinel could not immediately be reached for comment Friday.

Founder is represented by Sanjiv N. Singh of Sanjiv N. Singh PLC and Michael B. Indrajana of Indrajana Law Group PLC.

Hartford and Sentinel are represented by Anthony J. Anscombe, Sarah D. Gordon and Melanie A. Ayerh of Steptoe & Johnson LLP.

The case is Founder Institute Inc. v. Hartford Fire Insurance Co., case number 3:20-cv-04466, in the U.S. District Court for the Northern District of California.

--Editing by Alyssa Miller.

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Case Information

Case Title

Founder Institute Incorporated v. Hartford Fire Insurance Company et al

Case Number



California Northern

Nature of Suit



Vince Chhabria

Date Filed

July 06, 2020

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