GCDC, a grilled cheese bar downtown that typically draws office workers and tourists near the White House, filed a class action suit this week against insurance carrier Hartford for denying coverage of business it lost during the novel coronavirus pandemic.
The lawsuit, filed in D.C. federal court on Monday, April 27, aims to recoup financial losses from Hartford Financial Services Group and wholly-owned subsidiary Sentinel Insurance. Restaurants around the country are taking insurers to court over business-interruption policies, many of which have provisions that exclude viruses. GCDC is at least the third known D.C. area restaurant to a file suit after its claim was denied, including the Proper 21 sports bar nearby and Arlington Tex-Mex fixture Guajillo.
“That’s pretty much the story heard all across country from thousands of restaurants,” says Geoffrey Graber, a partner at Cohen Milstein, which is representing GCDC along with Gibbs Law Group. “Every single restaurant [insurance] carrier has taken the position there is no coverage... I am not aware of a single claim being honored.”
Like Proper 21, GCDC is arguing that a D.C. government mandate to close restaurants for on-site dining qualifies it for coverage under a policy that protects the business from “civil authority” actions. Hartford declined to comment on the suit.
While the grilled cheese bar is the only named plaintiff, Cohen Milstein is fielding calls from other D.C. restaurants that have been denied coverage by Hartford to join the suit.
Despite broadening takeout offerings during the pandemic, GCDC experienced a 95 percent drop in business income between early March and April 11, according to the suit. On April 11, the restaurant opted to fully close during the duration of the dine-in ban (set to expire May 15).
GCDC, located at 1730 Pennsylvania Avenue NW downtown, did around $1.46 million in sales last year and employs 10 full-time workers. In addition to its long list of grilled cheese selections, the six-year-old location also serves loaded tater tots, soups and salads, and local wines, beers, and mixed drinks. Carryout and delivery historically make up a mere 15 percent of revenue.
“This is very common among restaurant owners — you can’t replace regular business with takeout,” he says.
The 2,146-square-foot restaurant fits around 85 diners at a time for lunch and sit-down dinner service. Insurance premiums paid in full have totaled more than $108,000 to date since opening.
Graber notes even drive-thru giant McDonald’s, which “you would think is ideal for takeout,’ is suffering. According to a report from Kalinowski Equity Research released Monday, franchisees surveyed across the U.S. forecast a 20 percent drop in same-store sales in the second quarter.
In a denial letter dated March 25, Hartford argues that a “pollution exclusion” in GCDC’s policy excludes it from coverage because “[t]he coronavirus is understood to be an irritant or contaminant which causes or threatens to cause physical impurity, unwholesomeness and threatens human health or welfare.”
GCDC’s request for relief includes a “breach of contract and breach of the implied covenant of good faith and fair dealing.” Many similar lawsuits don’t [include] specific dollar amounts demanded, Graber says, because losses are ongoing: “Business are shut down right now and damages are accruing.”
Graber says going the class action route can be more efficient for this type of case.
“Rather than having dozens or hundreds of thousands of ‘mini’ trials, it allows plaintiffs to band together to seek relief where it would be impractical or impossible to do on their own,” Graber says. “It is possible that federal courts will decide at some point these cases should be coordinated or consolidated in some fashion. There are dozens — if not in the hundreds now — of suits being filed around the country.”
He reports he’s received calls from “many” restaurants in D.C. and around the country, many of which have Hartford policies. All have been denied claims.
“People don’t fully appreciate what these restaurateurs are going through ... [and] just how bad it is. A lot of folks won’t be able to come back. It’s really tragic,” he says. “Then you see insurance carriers sitting on hundreds of billions of dollars in premiums paid over the years.”