Rare victory for S.F. restaurant that sued insurers for $20 million in pandemic losses
John’s Grill, home of long martini lunches and lamb chop dinners in San Francisco, has settled an insurance lawsuit with a very rare victory in a nationwide search of restaurants trying to get their insurers to cover business losses incurred during the lockdown COVID-19 arose.
The terms of the settlement were not disclosed, but attorney Joe Cotchett, the attorney representing John’s Grill, said the payout to the restaurant was “substantial.”
Cotchett filed a federal lawsuit on behalf of John Konstin, the owner of John’s Grill, which has been located just off Market Street for 114 years, against the restaurant’s insurer — Hartford and its subsidiary Sentinel Insurance Co.
The settlement is touted as one of the first victories against a major insurer over business disruption related to COVID-19. These claims have regularly been rejected in courts because the losses suffered by the companies were not physical. That’s even as both the California Supreme Court and the state’s First Circuit Court of Appeals have sided with insurers by denying pandemic-related business loss claims.
Earlier this week, the Ohio Supreme Court ruled that insurance companies are not liable for claims for lost business revenue due to a government-ordered shutdown. The decision stated that the temporary loss of use of a property does not constitute material damage.
“We are not aware of any other business interruption insurance claim settlements on either the West Coast or the East Coast,” said Laurie Thomas, executive director of the 800-location Golden Gate Restaurant Association. Thomas has two restaurants of his own in Cow Hollow – Rose’s Cafe and Terzo. She filed claims for pandemic-related losses for both restaurants. Both were refused.
“John is extremely fortunate to settle this and receive compensation,” Thomas said. “It’s the only restaurant I’ve heard of that has received a settlement offer.
Michelle Loxton, a spokeswoman for Connecticut-based Hartford, did not respond to a request for comment. Eileen Gilligan, a spokeswoman for the American Property Casualty Insurance Association, said she was not familiar with the case and could not comment.
Server Pablo Garcia cracks peppers on guest Eva Schouten’s salad at John’s Grill in San Francisco in September 2020. The restaurant’s owner and his attorneys won a rare settlement after a legal battle with their insurers over pandemic-related losses.
Michael Short, Special on The Chronicle / Special on The ChronicleJohn’s Grill, along with all other restaurants and retail outlets in the city, closed in March 2020 when the city ordered residents to stay home to prevent the spread of the coronavirus. According to the lawsuit, 54 workers lost their jobs. After 137 days in the dark, it reopened on August 1, 2020, but closed again in December following a surge in new cases. It only reopened on March 3, 2021, 87 days later. The combined 220-day closure cost John’s Grill $20 million, according to Konstin.
“COVID was and is incredibly disruptive for the hotel industry,” said Konstin. “The restaurant closures have been unprecedented and have severely impacted the livelihoods of those who work in restaurants.”
When the Hartford initially denied its claim for business interruption losses, it sought out Konstin Cotchett, a regular patron. The lawsuit was filed in San Francisco Superior Court in spring 2020 during the first lockdown. As in other lawsuits against insurers, it says the virus caused property damage by contaminating everything from the tables and chairs at John’s Grill to the outdoor parking meters and the “scooters that line Ellis Street.”
The lawsuit was dismissed by a Supreme Court judge, so Cotchett took it to the California Circuit Court of Appeals, also in San Francisco. According to Cotchett, while that court reviewed the case, Hartford offered to settle the claim.
“Hartford realized they had a serious legal problem that could spread across the country and open up many more lawsuits,” Cotchett said. Due to a non-disclosure agreement, he did not want to reveal which language in John’s Grill Hartford’s insurance policy exposed his claim. “We hope other small businesses read their policies very carefully,” he said.
The settlement is unlikely to impact future cases, as state and federal courts have ruled in favor of insurers facing similar claims.
In a separate case, the state Supreme Court on Wednesday denied an appeal by a company that owns restaurants in San Francisco, Marin and Santa Barbara counties and was denied insurance coverage for lost income during the COVID-19 shutdown.
The Apple Annie company had standard property insurance that covered financial loss caused by “direct physical loss or damage to (the insured) property.” It claimed it suffered such losses because it was forced to close its restaurants after local health officials and then Gov. Gavin Newsom issued on-site shelter orders in March 2020.
Most state and federal courts have dismissed such claims, finding that the companies suffered no actual physical harm from the coronavirus, and the San Francisco First Circuit Court of Appeals reached the same conclusion in July. COVID-19 is “an invisible virus that is present all over the world,” Judge James Richman said in the 3-0 verdict.
“It is this general presence and not specific physical damage to covered properties that has prompted governments at all levels to consider restrictions,” Richman wrote.
Apple Annie appealed to the Supreme Court, which dismissed the review without comment on Wednesday.
“Unfortunately, given the history of other similar cases, it was predictable,” said Michael Bidart, attorney for the restaurant company.
Sam Whiting and Bob Egelko are staff writers for the San Francisco Chronicle. email: [email protected], [email protected] Twitter: @SamWhitingSF, @BobEgelko
