By Shawn Rice

Law360 (April 15, 2022, 2:08 PM EDT) -- A "glimmer of hope" was what two business owners held on to as they fought their insurance carrier for coverage of losses from closing their San Francisco café during the pandemic, but the two would eventually lose out on that hope with a loss at the Ninth Circuit.

Two years past the start of the pandemic, many businesses are now seeing the end of their coverage litigation with their insurance carriers at the federal appellate level. Some policyholders have managed to keep alive their suits in state courts with some making their way to state high courts.

Property insurance carriers have largely succeeded in persuading judges that their policies weren't ever intended to cover the types of losses that hit businesses during the pandemic. The policyholders disagree, with thousands of lawsuits filed to decide the correct interpretation of the policy language.

Law360 reached out to business owners who have had their cases resolved, to discuss the effects of the pandemic on their lives, what they did to try and survive and their decision to fight insurers. In the second of this series of stories, Law360 spoke with Steven Baker, who formerly co-owned Chloe's Café. The first story in this series examined the court battles of Grand Master Chuck Gorino, who teaches at an upstate New York taekwondo studio.

"Might Be a Glimmer of Hope"

Once upon a time in Hollywood, Baker and Melania Kang started a business catering for movie sets. The married pair took so-called craft services jobs on the sets of independent films that allowed them to travel and see the country. But they wanted to establish roots in a community.

Then, they landed a catering job on the Patrick Swayze blockbuster "Dirty Dancing," and they were able to use the money from that big score to realize that dream and set up their own café.

In 1987, Baker and Kang opened up Chloe's Café on a corner street in San Francisco. The couple prided themselves in the business where Kang cooked her special breakfast items like banana-walnut pancakes with warm, pure maple syrup, and Baker chatted up customers, refilling cups of coffee.

The cafe's name was happenstance as the two hadn't settled one despite different possibilities. The night before they were scheduled to apply for a permit, Baker and Kang heard a neighbor calling their pet.

"We looked at each other and, voila! That was it!" Baker said.

Over the course of the next 33 years, some famous faces walked through the doors of Chloe's Café, like Facebook founder Mark Zuckerberg and Lana and Lilly Wachowski, the directors of the Matrix films. But it was the regular customers that came for their routine fix of breakfast and coffee who held a special place in the hearts of Baker and Kang.

"It's an old-fashioned social gathering place," Baker said. "It's fun. People come in. You have wonderful people that work for you."

The café never suffered a loss over the course of 33 years, Baker said, until COVID-19 hit and forced the owners to close down for nearly three months. Baker and Kang quickly shifted their café's focus on takeout when restrictions were put in place. Baker also turned to their insurance policy for coverage.

"I kept reading over that line that it covered all risks," he said. "I thought that there might be a glimmer of hope."

Their insurance carrier, Oregon Mutual Insurance Co., disagreed, on both the policy language and the coverage.

A representative of the insurance carrier didn't respond to a request for comment.

Chloe's Café received some help through a government Paycheck Protection Program loan to help cover employee salaries. The loan wasn't enough to help with the difficulties during the pandemic, and Baker and Kang had to pay costs out of their own pockets. They pinned their hopes on their insurance policy as a source to keep the kitchen running and staff employed.

The San Francisco residents filed a proposed class action in August 2020, challenging Oregon Mutual's denial of insurance coverage. A California federal judge ruled in March 2021 that the café's policy didn't cover lost business income or expenses from closure orders. And they hadn't sufficiently shown that the coronavirus caused the café to lose functionality, the judge said.

The Ninth Circuit dealt the final blow to Baker and Kang's suit a year later, on March 16, affirming the case's dismissal. In its decision, the panel turned to a California appellate court ruling that went in favor of an insurer to find that losses from government closure orders weren't covered.

Baker said the former owners had "held out hope" throughout the lawsuit. To them, they would have been grateful for anything to help cover the losses, but they accept the court system didn't see it that way.

"If we had gotten anything that would cover the losses, just anything," he said. "We didn't expect that we'd be pulling our savings out to keep going."

The café's 33-year run for Baker and Kang ended when the pandemic forced them to sell the business to another family — though the café's name, menu and some of the staff were kept — to help with court costs.

"That was the only bright spot at the end," Baker said. "That was meaningful to us. To keep some of the staff integral to making it a great space for all those years."

Baker said there is no bitterness in how the story ended. He recalled memories like Chloe's Café's 25th anniversary. The café celebrated with an open house at night for the whole neighborhood with Thai dancers entertaining the crowd and the staff with a beautiful dance.

Baker remembered the pandemic's struggle and being grateful for the core staff that remained. He kept thinking the situation was like a sinking ship where the crew members stayed behind to keep it afloat.

"It's part of life and life goes on," he said. "And you can concentrate on your family and health and look on the bright side."

Baker is considering starting a new business, but for now, he is content enjoying a blue sky and working in his flower garden on a sunny afternoon.

Chloe's Café is represented by Daniel J. Veroff of Merlin Law Group PA.

Oregon Mutual is represented by Clarke B. Holland, David B.A. Demo and Andrew P. Collier of Pacific Law Partners LLP and R. Lind Stapley of Soha & Lang PS.

The case is Steven Baker et al. v. Oregon Mutual Insurance Co., case number 21-15716, before the U.S. Court of Appeals for the Ninth Circuit.

--Additional reporting by Eli Flesch and Hannah Albarazi. Editing by Tim Ruel.

For a reprint of this article, please contact reprints@law360.com.