Amid nationwide hesitance by courts to extend business coverage to businesses that shut down during COVID, Coast Restaurant Group came closer to winning its case than most. In the case of Coast Rest. Grp. v. Amguard Ins. Co., No. G061040, 2023 Cal. App. LEXIS 269 (Ct. App. April 10, 2023), although the court agreed that the government shutdown qualified as a "direct, physical loss" under the policy, the existence of a virus exclusion as well as a clause specifically excluding coverage for loss caused by an ordinance or law foiled Coast Restaurant's hopes of getting Amguard to pay up. This ruling is significant because it effectively splits the opinion of the appellate courts on this issue and leaves more wiggle room for trial courts on this issue.
Underlying Facts of the Case
Cedar Creek Inn is a restaurant operating in North Orange County. In addition to offering fine food and drinks, it also entertains guests with live musical performances. The owners of Cedar Creek purchased business operation insurance from Amguard Insurance. The policy ran from March 30, 2019 - March 30, 2021. It stated that "Business interruption insurance protects against the loss of income and other losses caused by an interruption to the normal operations of the business."
When the COVID-19 pandemic hit, Cedar Creek was forced to shutter its doors in compliance with an order by California Governor Newsom which prohibited restaurants from serving food on their premises or allowing the gathering of people. Only pickup, delivery and drive thru food services were allowed.
Cedar Creek filed a claim with Amguard for its business income loss as a result of the pandemic closures and reduced business. Unlike other cases, however, Cedar Creek did not claim that the business income loss was the result of contamination of the premises by the virus, but rather a result of the stay-at-home orders issued by the Governor. Amguard denied the claim finding that the property did not sustain any direct physical loss or damage to trigger coverage. In addition, the policy contained a virus exclusion as well as a government ordinance exclusion which also precluded coverage.
Cedar Creek sued for breach of contract and the implied covenant of good faith and fair dealing. Cedar Creek pointed to the "Additional Coverages for Business Income" section of the policy which read, " [Insurance company] will pay for the actual loss of business income you sustain due to the necessary suspension of your operations...
