Ninth Circuit Certifies Virus Exclusion Issue to California Supreme Court

    The Ninth Circuit asked the California Supreme Court to address whether the policy’s virus exclusion  was enforceable to preclude coverage for business income losses due to the present of COVID-19 at the insured’s properties. French Laundry Partners LP v. Hartford Fire Ins. Co., 2023 U.S. App. LEXIS 2845 (9th Cir. Feb. 6, 2023). 

    French Laundry Partners owned two restaurants in Napa County, California. The restaurants were forced to shut down due to the government orders related to the COVID-19 pandemic. It sought coverage for its economic losses, but Hartford denied the claim. French Laundry filed suit.

    The policy contained a virus exclusion stating that Hartford would not pay for loss caused by the “presence, growth, proliferation, spread or any activity of . . . virus.” The exclusion, however, did not apply to coverage otherwise provided by the Fungus, Wet Rot, Dry Rot, Bacteria and Virus – Limited Coverage” provision in the policy. This provision allowed coverage for certain looses casued by virus, assuming virius was the resutl of one of the listed causes. French Laundry argued that the virus exclusion could not be construed to preclude coverage because such a consturction would rend the limited virus coverage illusory.

    Hartford filed a motion to dismiss, which was granted by the district court based on a finding that the virus exlcusion was enforceable and barred any coverage. Since the district court’s dismissal, the California Court of Appeal had issued John’s Grill, Inc. v. Hartford Fin. Servs. Grp., Inc., 86 Cal. Ap;p. 5th 1195 (2022). In John’s Grill, the court analyzed the interaction of a virus exclusion term and a limited virus coverage provision in a policy issued by Hartford, and held that the exclusion could not be enforced because it would render the limited virus coverage illusory. 

    The Ninth Circuit certified to the California Supreme Court the following question:

Is the virus exclusion in French Laundry’s insurance policy unenforceable beause enforcing it would render illusory a limtied virus coverage provision allowing for the possiblity of coverage for business losses and extra expenses allegedly caused by the presnece and impacts of COVID-19 at an insured’s properties, including the loss of business due to the civil authority closure order?