French Laundry Partners v. Hartford Fire Insurance Company

Background

The plaintiffs own and operate The French Laundry and Bouchon Bistro in Napa County, California. After the Napa County Health Officer issued a March 18, 2020 order requiring people to stay home except for specified essential services and activities, the restaurants stopped operating except for delivery and takeout. The plaintiffs alleged that access to their businesses was affected for several months and that they furloughed more than 300 employees.

The plaintiffs’ insurance policy with Hartford included business-income coverage and additional provisions concerning closure by a civil authority and viral contamination. After Hartford denied the plaintiffs’ claim, the plaintiffs filed a lawsuit seeking declarations about whether the county order triggered coverage and whether the policy covered their COVID-19-related losses. Hartford removed the case to federal court and moved to dismiss.

The Policy’s Virus Exclusion

The court held that the policy’s Virus Exclusion barred coverage for the losses alleged in the complaint. The exclusion applied to loss or damage caused directly or indirectly by the presence, growth, spread, or activity of a virus, subject to specified exceptions. The court concluded that the complaint identified COVID-19 as the direct or indirect cause of the plaintiffs’ economic losses and that the exclusion’s language was plain and unambiguous.

The court rejected the plaintiffs’ reliance on the policy’s Deluxe Form and its limited virus coverage. That provision stated that the coverage applied only when the virus resulted from a specified cause of loss, equipment-breakdown accident, or flood. The plaintiffs did not allege that their losses resulted from one of those categories and instead argued that the categories were not exclusive. The court found that argument inconsistent with the policy’s language.

The court also rejected arguments based on Hartford’s state-specific endorsements, alleged prior statements to the California Department of Insurance, and the contention that the policy’s virus coverage was illusory. The court explained that the policy did not need to provide broad coverage to avoid being illusory; it only needed to provide some possible coverage that was not excluded. The court further concluded that the policy was not ambiguous merely because the available coverage was narrow.

Estoppel Arguments

The plaintiffs argued that Hartford should be prevented from denying coverage under regulatory-estoppel and judicial-estoppel theories. The court rejected both arguments. It stated that California courts do not recognize regulatory estoppel in the circumstances presented and that the plaintiffs had not identified specific Hartford statements contradicting Hartford’s current position.

The court also found judicial estoppel inapplicable. That doctrine generally requires, among other things, that the same party previously took a successful and totally inconsistent position in a judicial or quasi-judicial proceeding. The plaintiffs did not contend that the regulatory proceedings before the California Department of Insurance were quasi-judicial proceedings.

Discovery and Disposition

The plaintiffs argued that dismissal was premature because discovery might reveal earlier versions of the virus-coverage provision or evidence that Hartford had recognized pandemic risks. The court held that even such evidence would not change its conclusion that the agreement unambiguously precluded coverage for the economic losses alleged.

The court granted Hartford’s motion to dismiss. Because the plaintiffs had already filed an amended complaint and the Virus Exclusion barred coverage as a matter of law, the court stated that leave to amend would be futile. The order did not itself enter judgment; it stated that judgment would be entered by separate order. Judge Jacquelyn Scott Corley vacated the scheduled hearing and issued the order on April 27, 2021.