Cafe Battles To Keep COVID-19 Insurance Coverage Suit Alive

By Hannah Albarazi
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Law360, San Francisco (December 17, 2020, 10:39 PM EST) -- A San Francisco cafe urged a California federal magistrate judge Thursday not to grant Oregon Mutual Insurance Co.'s bid to toss its putative class action seeking COVID-19 loss coverage, arguing that its insurance policy must cover the physical damage it has suffered as a result of the pandemic.

Chloe's Cafe told U.S. Magistrate Judge Laurel Beeler that COVID-19 has contaminated the air, leading to a partial suspension of its operations, but that Oregon Mutual has wrongfully refused to pay it and similarly situated policyholders for revenue loss stemming from the government-ordered closures.

The eatery's attorney, Chip Merlin of the Merlin Law Group, said during Thursday's hearing that unlike many of the business interruption coverage suits brought amid the pandemic, the insurance policy covering Chloe's Cafe has no exclusion for losses resulting from a virus.

Merlin argued that the cafe's business has been interrupted by physical damage in the form of COVID-19 particulates floating through the air.

But Oregon Mutual's attorney Clarke Holland, of Pacific Law Partners LLP, disagreed, telling Judge Beeler that this case "has nothing to do with direct physical loss and damage."

"The danger presented by COVID-19 is a danger because of us," Holland told the judge. "We are the danger. That is why we're being vaccinated."

The co-owners of Chloe's Cafe, San Francisco residents Steven Baker and Melania Kang, brought suit against Oregon Mutual in August seeking declaratory judgment establishing that they are entitled to coverage for loss due to the actions of a civil authority, extra expense coverage, business income coverage and business income from dependent properties coverage.

The putative class action alleges that Oregon Mutual has "systematically denied" insurance claims for coverage of losses and expenses by insured businesses due to the pandemic, constituting a breach of contract.

The eatery says its insurance policy doesn't contain any exclusion that would apply to allow the insurer to completely deny coverage for losses caused by COVID-19 or actions of civil authorities taken in response to it.

Chloe's Cafe told the judge during Thursday's hearing that it "pled a good case," stressing that there's no virus exclusion in its policy.

"Some people took cases that have a virus exclusion in them. God bless them. But those are a lot tougher cases to go win than the ones without the virus exclusion," Merlin told Judge Beeler.

But Oregon Mutual urged her to toss the suit, saying that Chloe's Cafe has experienced no physical damage and that it was still operating for takeout, and at times dining, following the state and local emergency orders.

Holland told the judge that since the pandemic began, dozens of courts nationwide and all of the federal courts in California have held that there's no coverage for business interruption. Of the California federal courts that have ruled on this, Holland told the judge, "virtually every one of them, whether there was a virus exclusion or not, have held that there's no direct physical loss in these circumstances."

"The restaurant isn't dangerous," Holland told the judge, noting that Chloe's Cafe has been open for business throughout the pandemic.

Throughout the hearing, Judge Beeler expressed her sympathies for restaurants struggling in the pandemic, saying it's "really distressing what's going on right now."

Judge Beeler took the matter under submission.

Earlier this week another federal magistrate judge in the Northern District of California threw out a hair salon's suit for coverage of business interruption losses stemming from the COVID-19 shutdown, saying a clear and unambiguous exclusion for losses resulting from a virus bars any recovery.

The suit filed by Chloe's Cafe is one of over 1,400 federal suits — including over 180 of which seek to represent a federal class — fighting insurers' denial of COVID-19 coverage, according to a pandemic insurance litigation tracker maintained by the University of Pennsylvania's Carey Law School. The number of coronavirus insurance coverage lawsuits in state courts across the country reached over 600 last month.

On Monday, a groundbreaking COVID-19 insurance trial kicked off in Louisiana, where a large restaurant told a judge that a group of underwriters at Lloyd's of London must cover losses from diminished dining capacity while the underwriters insisted that the virus isn't property damage.

Representatives for the parties did not immediately respond to requests for comment Thursday afternoon.

Chloe's Cafe is represented by William "Chip" Merlin, Daniel Jack Veroff and Victor J. Jacobellis of the Merlin Law Group, and Adam Matthew Moskowitz and Adam A. Schwartzbaum of The Moskowitz Law Firm PLLC.

Oregon Mutual is represented by Clarke Benbow Holland of Pacific Law Partners LLP.

The case is Steven Baker et al. v. Oregon Mutual Insurance Company, case number 3:20-cv-05467, in the U.S. District Court for the Northern District of California.

--Editing by Emily Kokoll.

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