John’s Grill, home of long martini lunches and lamb chop dinners in San Francisco, has settled an insurance lawsuit in a very rare victory in the nationwide quest of restaurants seeking to have their insurers cover business losses incurred during COVID-19 lockdowns.
The terms of the settlement were not disclosed, but Joe Cotchett, the attorney who represented John’s Grill, said the payout to the restaurant is “substantial.”
Cotchett filed a federal lawsuit against the restaurant’s insurer — the Hartford and its affiliate Sentinel Insurance Co. — on behalf of John Konstin, the owner of John’s Grill, which has sat just off Market Street for 114 years.
The settlement is touted as one of the first victories against a major insurer over business interruptions caused by the COVID-19 pandemic. These claims have been routinely denied in courts because the losses incurred by businesses were not physical. It comes even as both the California Supreme Court and the state’s First District Court of Appeal have sided with insurers in denying pandemic-related claims for loss of business.
Earlier this week, the Ohio Supreme Court ruled that insurance companies are not liable for claims of lost business income because of a government-ordered shutdown. The decision stated that the temporary loss of use of a premises does not constitute a physical loss.
“We are not aware of any other settlements on either the West Coast or East Coast of insurance claims for business interruptions,” said Laurie Thomas, executive director of the Golden Gate Restaurant Association, with 800 locations. Thomas has two Cow Hollow restaurants of his own — Rose’s Cafe and Terzo. She filed claims for pandemic-related losses for both restaurants. Both were denied.
“John is very fortunate to settle this and receive some compensation,” Thomas said. “It is the only restaurant I have heard of that received a settlement offer.
Michelle Loxton, a spokesperson for the Hartford, based in Connecticut, did not respond to a request for comment. Eileen Gilligan, a spokesperson for the American Property Casualty Insurance Association, said she was unfamiliar with the case and that APCIA does not comment on settlements.
Server Pablo Garcia cracks pepper on the salad of guest Eva Schouten at John’s Grill in San Francisco in September 2020. The restaurant’s owner and his lawyers won a rare settlement after a legal battle with their insurers 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. Fifty-four workers lost their jobs, according to the lawsuit. After 137 days in the dark, it reopened on Aug. 1, 2020, but closed again in December after a surge of new cases. It did not reopen until March 3, 2021, 87 days later. The combined closure for 220 days cost John’s Grill $20 million, according to Konstin.
“COVID was and continues to be incredibly disruptive to the hospitality industry,” Konstin said. “The restaurant closures were unprecedented and seriously impacted the livelihood of those working at restaurants.”
When the Hartford initially denied his claim for business interruption losses, Konstin sought out Cotchett, a regular patron. The suit was filed in San Francisco Superior Court in spring 2020, during the initial lockdown. Like other suits against insurers, it said the virus caused property damage by contaminating everything from the tables and chairs inside John’s Grill to the outdoor parking meters and the “scooters that line Ellis Street.”
The suit was dismissed by a superior court judge so Cotchett took it to the California Court of Appeal, also in San Francisco. While that court was considering the case, Hartford offered to settle the claim, according to Cotchett.
“Hartford recognized that they had a serious legal problem which could go nationwide and open up many more lawsuits,” Cotchett said. Because of a confidentiality agreement, he would not reveal what language in the John’s Grill insurance policy left Hartford exposed to his claim. “We hope that other small businesses read their policies very carefully,” he said.
The settlement appears unlikely to affect future cases because state and federal courts have ruled in favor of insurers facing similar claims.
In a separate case, the state Supreme Court denied an appeal Wednesday by a company that owns restaurants in San Francisco, Marin and Santa Barbara counties and was denied insurance coverage for income lost during the COVID-19 shutdown.
The company, Apple Annie, had a standard property-damage policy, which covered financial losses caused by “direct physical loss of or damage to (the insured) property.” It claimed that it suffered such losses by having to close its restaurants after local health officials, and then Gov. Gavin Newsom, issued shelter-in-place orders in March 2020.
Most state and federal courts have rejected such claims, finding that the businesses suffered no actual physical harm from the coronavirus, and the First District Court of Appeal in San Francisco reached the same conclusion in July. COVID-19 is “an invisible virus that is present throughout the world,” Justice James Richman said in the 3-0 ruling.
“It is that general presence, and not a specific physical harm to covered properties, that has caused governments at all levels to consider restrictions,” Richman wrote.
Apple Annie appealed to the state Supreme Court, which denied review Wednesday without comment.
“Regrettably, it was predictable given the history of other similar cases,” said Michael Bidart, a lawyer for the restaurant company.
Sam Whiting and Bob Egelko are San Francisco Chronicle staff writers. Email: swhiting@sfchronicle.com, begelko@sfchronicle.com Twitter: @SamWhitingSF, @Bob Egelko