This is an update on the business interruption insurance claims related to the COVID-19 shutdowns as of May 29th, 2020. Across the United States, businesses are calculating both the sunk and future revenue losses resulting from the COVID-19 pandemic. Numerous businesses have filed complaints against their insurers for wrongful coverage of certain losses due to the government-mandated shutdowns of regular business operations.

As of March 16th, The Oceana Grill of New Orleans, LA was the first business to sue an insurance company on the grounds of wrongful coverage of monetary loss as a result of the Coronavirus. In the case of Cajun Conti, LLC et al. v. Certain Underwriters at Lloyd’s of London, the owners of The Oceana Grill argue that Lloyd’s is responsible for insuring their restaurant because they hold an “all risks” policy, which does not specifically exclude losses incurred from a pandemic or virus. All risk policies are most often used in reference to physical damages, however, at this time many businesses are arguing that contamination from the virus constitutes physical damage. There have not been any further proceedings with this case, however, a variety of other businesses have followed suit and filed complaints against their insurers as well.

Currently, there have been eight lawsuits in six different states, including Louisiana, Illinois, California, Texas, Florida and Oklahoma. All eight of the pending complaints are from small business owners, six of the suits being from restaurant and bar owners. A majority of these cases claim that the national government shutdowns have majorly impacted their business operations and earnings.

In Chicago, movie theatre and restaurant owners are collectively suing their insurance carrier for wrongful coverage of work interruptions due to the pandemic. In this case, Big Onion Tavern Group, LLC v. Society Insurance, Inc., the small business owners claim that Society Insurance is wrongful in denying their businesses coverage from losses incurred due to “necessary suspension” of daily business when their policies explicitly promise coverage of government shutdowns. Furthermore, Society Insurance did not conduct coverage investigation which is required under Illinois law. Insurance companies in Illinois, like other states, are claiming that the existence of COVID-19 in a business does not qualify as property damage. In the state of Illinois, this is contradictory to laws as courts have held “dangerous substances” in the past to constitute “physical loss or damage.” Insurance industries are creating specific exclusions related to losses consequential to COVID-19, which would not be necessary if, in fact, the virus did not result in “physical loss or damage.”

In California, French Laundry Partners, LP et al. v. Hartford Fire Insurance Co. et al. (Napa County), argues that the government issued stay-at-home order was instituted as a result of evidence that the Coronavirus can live on surfaces and damage property. Many state guidelines are requiring businesses to fumigate their property before reopening to the public, furthering the argument that the Coronavirus has physically impacted business and thus insurance companies should be held accountable for upholding their policies regarding damaged property. Many of the business interruption insurance cases are filing similar claims for the wrongful representation of existing policies.

As the Coronavirus continues to ebb and flow over time and affect daily business procedures, it is expected that other policyholders will take similar legal action against their insurers. Certain states such as Massachusetts, New Jersey and Ohio have acknowledged this trend and have proposed laws related to insurance companies paying certain claims to support small businesses as a result of the economic strains caused by the COVID-19 pandemic. Currently, no bill has been passed.

Tags: Insurance, Joseph Pastore