A rare victory for a SF restaurant that sued insurance companies after losing millions in the pandemic
John’s Grill, home of San Francisco’s martini lunches and lamb chop dinners, has settled an insurance lawsuit in a very rare victory in the restaurants nationwide quest to have their insurance companies cover business losses incurred during the COVID-19 shutdowns.
The terms of the settlement were not disclosed, but Joe Cochet, the attorney who represented John Grill, said the damages to the restaurant are “significant.”
Cotchett filed a federal lawsuit against the restaurant’s insurer – Hartford and its subsidiary, Sentinel Insurance Co. – On behalf of John Konstin, owner of John’s Grill, which has been around just off Market Street for 114 years.
The settlement is described as one of the first victories against a major insurance company due to business interruption caused by the COVID-19 pandemic. These claims were routinely dismissed in the courts because the losses suffered by the companies were not material. It comes even as both the California Supreme Court and the state’s first district court of appeals have sided with insurers in dismissing pandemic-related claims for loss of business.
Earlier this week, the Ohio Supreme Court ruled that insurance companies are not liable for claims for loss of business income due to government-ordered shutdowns. The decision stated that the temporary loss of use of the building does not constitute a material loss.
“We are not aware of any other settlements on the West Coast or East Coast for business interruption insurance claims,” said Laurie Thomas, executive director of the Golden Gate Restaurant Association, which has 800 locations. Thomas has two restaurants of her own in Cow Hollow – Rose’s Cafe and Terzo’s. Claims for pandemic-related losses were filed for both restaurants. Both were rejected.
“John is very lucky to have settled this and get some compensation,” said Thomas. It’s the only restaurant I’ve heard of that received a settlement offer.
Hartford, Connecticut-based spokeswoman Michele Loxton did not respond to a request for comment. Elaine Gilligan, a spokeswoman for the American Property Accident Insurance Association, said she was unaware of the case and that APCIA does not comment on settlements.
Server Pablo Garcia cracks peppers on guest Eva Scutin’s salad at John’s Grill in San Francisco in September 2020. The restaurant owner and his attorneys won a rare settlement after a legal battle with insurance companies over pandemic-related losses.
Michael Short, Special to The Chronicle / Special to The ChronicleJohn’s Grill closed along with every other dining and retail establishment in the city 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 after a wave of new cases. It didn’t open until March 3, 2021, 87 days later. The combined 220-day shutdown cost John’s Grill $20 million, according to Constance.
“COVID has been and continues to be incredibly disruptive to the hospitality industry,” said Konstein. “The restaurant closures were unprecedented and seriously affected the livelihoods of restaurant workers.”
When Hartford initially denied its claim for business interruption losses, Consteen sought out Cotchett, a regular sponsor. The lawsuit was filed in San Francisco Superior Court in the spring of 2020, during the initial lockdown. Like other lawsuits against insurance companies, it said the virus caused property damage by contaminating everything from tables and chairs inside John’s Grill to outdoor parking meters and “scooters that line Ellis Street.”
The lawsuit was dismissed by a Superior Court judge, so Cotchett brought it to the California Court of Appeals, also in San Francisco. While that court was hearing the case, Hartford offered to settle the lawsuit, according to Cochet.
“Hartford realized they had a serious legal problem that could spread nationwide and open many lawsuits,” Cochet said. Because of the confidentiality agreement, he did not disclose the language on John’s Grill insurance policy that left Hartford exposed to his claim. “We hope other small businesses will read their policies very carefully,” he said.
It seems unlikely that the settlement will affect future cases because state and federal courts have ruled in favor of insurance companies facing similar claims.
In a separate case, the state Supreme Court denied an appeal Wednesday by a company that owned restaurants in San Francisco, Marin and Santa Barbara counties and was denied insurance coverage for lost income during the COVID-19 shutdown.
Apple Annie had a standard property damage policy, which covered financial losses due to “direct physical loss or damage to (insured) property”. It claimed it suffered such losses by having to close its restaurants after local health officials, and subsequently Governor Gavin Newsom, issued shelter-in-place orders in March 2020.
Most state and federal courts have dismissed such claims, finding that the companies did not suffer actual physical harm from the coronavirus, and the 1st District Court of Appeals in San Francisco reached the same conclusion in July. In the 3-0 ruling, Judge James Richman said that COVID-19 is an “invisible virus that exists all over the world.”
“It is this general presence, rather than specific physical harm to the covered property, that has prompted governments at all levels to consider the restrictions,” Richman wrote.
Apple Annie appealed to the state supreme court, which declined review Wednesday without comment.
“Unfortunately, that was to be expected given the history of other similar cases,” said Michael Bidart, an attorney for the restaurant company.
San Francisco Chronicle writers Sam Whiting and Bob Igleko. Email: swhiting@sfchronicle.com, begelko@sfchronicle.com Twitter: @SamWhitingSF, @sfchronicle.comBob Igleco
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