Brooklyn Restaurants, Inc. v. Sentinel Insurance Co., Ltd.
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The case concerns Brooklyn Restaurants, Inc., a company that operates a local diner in California. The company filed a lawsuit against its insurer, Sentinel Insurance Company, Limited, after the insurer declined a claim under a commercial property insurance policy following a partial shutdown of the diner during the COVID-19 pandemic. The lower court granted Sentinel’s motion for judgment on the pleadings, ruling there was no coverage under the policy for Brooklyn’s claimed business loss. However, Brooklyn appealed, asserting that its case was unique from other COVID-19 related insurance cases filed in the state, as it had alleged a direct physical loss which should trigger coverage under the policy.
Brooklyn also pointed out that their insurance policy contained a unique provision specifically covering losses attributable to a virus. Therefore, they argued, physical loss should include the cleaning of an area infected by the coronavirus. The Court of Appeal, Fourth Appellate District Division One State of California, agreed that the policy was reasonably susceptible to that interpretation. They also determined that Brooklyn had adequately alleged a direct physical loss or damage under the policy, which raised the possibility of coverage.
However, the policy also included certain exclusions and conditions applicable to coverage for a loss or damage resulting from a virus. Brooklyn argued that these exclusions and conditions rendered the policy illusory. The court agreed that at the pleading stage, Brooklyn had done enough to raise the issue that its policy might be illusory, which in turn raised factual questions that required further discovery and evidence collection. Therefore, the court reversed the judgment and remanded the case back to the lower court with instructions to enter an order denying Sentinel’s motion for judgment on the pleadings.
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