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Insurers' COVID-19 Notepad: What You Need to Know Now (Week of August 10)

Aug.10.2020

Text of H.R. 7412 (Business Interruption Relief Act of 2020) Published

As reported in the Insurers’ COVID-19 Notepad for the week of July 13, U.S. Representative Mike Thompson introduced the “Business Interruption Relief Act of 2020,” that purportedly would create a “Business Interruption Relief Program” (BIRP) to reimburse insurers that voluntarily paid COVID-19 business interruption claims under policies that include coverage for civil authority shutdowns but exclude virus-related loss. The text of the bill, H.R. 7412, has now been published and can be found here. Insurer, reinsurer and agent groups have criticized this bill, which has been advocated as a means of relief for businesses by plaintiffs’ counsel such as John Houghtaling.

Under this legislation, certain insurers could voluntarily participate in the BIRP by processing and paying uncovered BI claims. An eligible insurer must have one or more policies of insurance issued to a policyholder for business interruption insurance coverage that “(1) expressly include coverage for losses during any period of time that any civil authority shutdown as a result of the COVID-19 pandemic is in effect; and (2) expressly exclude coverage for a ‘virus.’” No reimbursement would be provided for “an insurer’s payment and claim expenses for benefits paid under any policy for business interruption coverage that does not expressly exclude coverage for a ‘virus.’” 

Employers Preferred Seeks Declaration of No Coverage For Proposed Class Action Concerning Coronavirus Safety Protections

Employers Preferred Insurance Company sued the former owner of a McDonald’s franchise in Illinois state court (Cook County), seeking a declaration that it has no duty to defend or indemnify the insured in connection with a proposed class action brought by employees concerning allegedly inadequate COVID-19 safety measures. The proposed class action alleges that employees were forced to work with inadequate protections to prevent the spread of COVID-19 and seeks declaratory and injunctive relief that would require the implementation of more stringent COVID-19 protocols. The policy allegedly provides both workers compensation and employers liability insurance coverage. Complaint at ¶ 13. The insurer’s Complaint alleges that the policy does not give rise to a duty to defend or indemnify because the underlying action does not seek any damages as required by the policy’s insuring agreement, and to the extent it does seek damages, “those damages are the ordinary costs of operating a business.” Id. at ¶¶ 33, 38.

D.C. Court: COVID-19 Claims Do Not Allege A Covered "Direct Physical Loss"

District of Columbia Superior Court Judge Kelly A. Higashi granted summary judgment for Erie Insurance Exchange in a lawsuit brought by a dozen high-profile District restaurants seeking coverage for business interruption losses allegedly suffered due to D.C.’s COVID-19 closure orders. Judge Higashi noted that “[a]t the most basic level, the parties dispute whether the closure of the restaurants due to Mayor Browser’s orders constituted a ‘direct physical loss’ under the policy,” and held that they did not. She reasoned that the orders directed businesses to take certain actions, but did not directly change the properties. Rejecting claims that the physical injury requirement was met because the virus is material or tangible, the court held that “the mayor’s orders did not have any effect on the material or tangible structure of the insured properties,” And that “none of the cases cited by Plaintiffs stand for the proposition that a governmental edict, standing alone, constitutes a direct physical loss under an insurance policy.”

New Business Interruption Suits Against Insurers:

The owner and operator of a restaurant sued Certain Underwriters at Lloyd’s London in Florida state court (Broward County) for declaratory relief under an “all risk” policy. Complaint at ¶ 18. The Complaint alleges that COVID-19 has caused direct physical loss and resultant/ensuing damage to property and that the applicable closure order caused additional lost business income. Id. at ¶¶ 15, 17. The insurer is alleged to have failed to communicate a coverage position despite the plaintiff’s demand for a determination with respect to coverage. Id. at ¶ 23.

Perfect Options LLC sued Mt. Hawley Insurance Company in Florida state court (Broward County) for a declaration that COVID-19 closure orders trigger coverage because the policy does not contain an exclusion for a pandemic and that the policy provides coverage for any current or future civil authority closures due to physical loss or damage from the pandemic. Complaint at ¶¶ 34, 35.

Chiropractors sued Liberty Mutual Insurance Company and Hartford Casualty Company in separate actions in Florida state court (Lake County and St. John’s County) for declaratory relief, alleging that the scientific community recognizes the pandemic “as a cause of real physical loss and damage” and that COVID-19 closure orders trigger coverage because the policy does not contain an exclusion for a pandemic and that the policy provides coverage for any current or future civil authority closures due to physical loss or damage from the pandemic. Complaint at ¶¶ 34, 35.

A chiropractor sued Hartford Casualty Company in Florida state court (St. Johns County) for declaratory relief. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶ 14. The Complaint alleges that the scientific community recognizes the pandemic “as a cause of real physical loss and damage” and that the insurer accepted premiums “with no intention of providing any coverage due to losses caused by a pandemic or civil authority.” Id. at ¶¶ 17, 18. The Complaint seeks declarations that COVID-19 closure orders trigger coverage because the policy does not contain an exclusion for a pandemic and that the policy provides coverage for any current or future civil authority closures due to physical loss or damage from the pandemic. Id. at ¶¶ 34, 35.

The owner and operator of a restaurant sued Preferred Mutual Insurance Company in federal court (D. Mass.), asserting claims for breach of contract, breach of the covenant of good faith and fair dealing, and violation of M.G.L. c. 93A § 11. The “all risk” policy allegedly provides business interruption, extra expense, extended business income, business income from dependent properties, and civil authority coverage. Complaint at ¶¶ 9-13. The Complaint alleges that COVID-19 has caused direct physical loss of and/or damage to property by “the property being damaged, access to the property being denied, customers being prevented from physically occupying the property, the property being physically uninhabitable by customers, the function of the property being nearly eliminated or destroyed, and/or a suspension of business operations occurring at the property.” Id. at ¶ 26. 

The owner of a daycare and pre-school in New Jersey sued Philadelphia Indemnity Insurance Company and Specht Insurance Group Ltd. In Pennsylvania state court (Philadelphia County), asserting claims for declaratory relief, breach of contract, bad faith, negligence, and negligent supplying of information for the guidance of others. The “all risk” policy allegedly provides business income, extra expense, civil authority, and communicable disease coverage. Complaint at ¶¶ 46-61. The policy also contains a “virus or bacteria exclusion.” Id. at ¶62. The Complaint specifically alleges that a parent of one of the plaintiff’s students tested positive for COVID-19, had been at the daycare, and had thus “entered and contaminated” the premises. Id.at ¶¶77-80, 95. The Complaint further alleges that the defendant initially advised the plaintiff that it would reimburse plaintiff for the costs of cleaning and decontaminating the covered premises, but that the defendant later wrongfully denied the plaintiff’s claim for coverage. Id. at ¶¶16-17.

The owner of a restaurant in Philadelphia sued Sentinel Insurance Company Ltd. In Pennsylvania state court (Philadelphia County), asserting a claim for breach of contract. The policy allegedly provides business income and civil authority coverage. Id. at ¶¶4-9. The policy also contains an exclusion for fungi, bacteria, and virus, which excludes the “suspected presence of . . . viruses.” Id. at ¶¶12-13. The complaint alleges that the defendant wrongfully denied the plaintiff’s claim for coverage. Id. at ¶¶27-28.

The owner of a restaurant in Austin sued Amco Insurance Company in Texas state court (Travis county), asserting claims for breach of contract, noncompliance with the Texas Insurance Code, and breach of the duty of good faith and fair dealing. The policy allegedly provides business income, extra expense and civil authority coverage. Complaint at ¶¶10-12. The policy also contains an exclusion for “virus or bacteria” Id. at ¶21. The Complaint alleges that the defendant wrongfully denied and mishandled the plaintiff’s claim for coverage. Id. at ¶6.

The owners/operators of several Illinois restaurants sued their insurers in Illinois state court (Cook County) seeking declaratory relief and asserting claims for breach of contract and unjust enrichments. (The named insurers are: Employers Insurance Company, Affiliated FM Insurance Company, Argonaut Great Central Insurance Company, Badger, Mutual Insurance Company, The Charter Oak Fire Insurance Company, The Cincinnati Insurance Company, Citizens Insurance Company of America, Hartford Fire Insurance Company Illinois Casualty Company, Ohio Security Insurance Company, North American Elite Insurance Company Sentinel Insurance Company, Society Insurance, Specialty Risk of America, Starr Surplus Lines Insurance Company, Secura Supreme Insurance Company, Twin City Fire Insurance Company ,Vigilant Insurance Company, and Zurich American Insurance Company.) Plaintiffs allege they suffered losses under the “all-risk” policy due to the executive orders issues by state and local authorities in an effort to slow the spread of the coronavirus. The Complaint asserts the government orders imposed direct physical restrictions, impairing Plaintiffs’ properties, or flatly required the business to shut down. Plaintiffs seek declaratory relief and damages in connection with claims for breach of contract and unjust enrichment. 

Striker Lanes filed sued Fireman’s Fund in Illinois state court (Cook County) seeking coverage for COVID-19 related business losses. Plaintiff alleges it sustained losses “due to the civil authority orders issued by the governor of Illinois and the Illinois Department of Health” in response to the pandemic. Complaint at 22. The Complaint asserts the “all-risk” policy’s Business Income, Extra Expense, and Civil Authority provisions provide coverage for the sustained losses.

The owners/operators of two Marriott hotels sued Zurich American Insurance Company in New York state court (Onondaga County) seeking coverage for COVID-19 related business losses. Plaintiffs allege they sustained substantial losses due to the presence of the coronavirus in Onondaga County and the government orders mandating the closure of Plaintiffs’ premises. The Complaint asserts the “all-risk” policies provide coverage for the suffered losses under the Business Income, Extra Expense, Civil and Military Authority, Ingress/Egress, and Cancellation of Bookings provisions. Plaintiffs allege the “Mold, Mildew, and Fungus Clause and Microorganism Exclusion” does not make any reference of viruses, and therefore does not apply. Plaintiffs also assert the Communicable Disease Exclusion was not disclosed at the time the policy was issued, and is therefore inapplicable. Plaintiffs seek declaratory relief and damages in connection with claims for breach of contract.

Several restaurants sued their insurers in New York state court (Kings County) in connection with business losses sustained due to government orders issued in response to COVID-19. The Complaint names the following insurers: Acceptance Indemnity Insurance Company, Admiral Indemnity Company, Arch Insurance Company, First Mercury Insurance Company, Greenwich Insurance Company, Hartford Fire Insurance Company, HDI Global Insurance Company, Indemnity Insurance Company of North America, Lexington Insurance Company, Metropolitan Property and Casualty Insurance Company, National Fire & Marine Insurance Company, Ohio Security Insurance Company, Sentinel Insurance Company, Sompo American Insurance Company, Strathmore Insurance Company, The Charter Oak Fire Insurance Company, Travelers Casualty Insurance Company of America, Travelers Excess and Surplus Lines Company, Twin City Fire Insurance Company, United National Insurance Company, United Specialty Insurance Company, Utica First Insurance Company, Western World Insurance Company, L Insurance America, Inc., and Zurich American Insurance Company. Plaintiffs allege the policies provide coverage for the “business income losses and extra expenses incurred as a direct result of unprecedented state and municipal shutdown executive order and restrictive Partial Reopening Executive Orders.” Complaint at ¶1. Plaintiffs each allege the orders issued by state and local governments in response to the pandemic required the closure or drastic alteration of business operations, and resulted in substantial losses. The Complaint seeks declaratory relief and seeks damages in connection with claims for breach of contract and unjust enrichments against each of the insurers.  

Consolidated Restaurant Operations, Inc. sued Westport Insurance Corp. in New York state court (Westchester County) seeking coverage for COVID-19 related business losses. Plaintiff alleges it was “forced to close by various stay at home orders, which directed all non-essential businesses to cease operations” and resulted in business losses. Complaint at ¶3. The Complaint asserts the “all-risk” policies Time Element, Contingent Time Element, Attraction Property, Commissions, Licensing Fees, and Royalties Losses, Ingress/Egress, Communicable Disease, Leasehold Interest, and Civil or Military Authority provisions respond to the submitted business losses. Plaintiff alleges the microorganism and contaminant exclusions do not apply. Plaintiff seeks declaratory relief and damages in connection with a claim for breach of contract.

Hudson Valley Bone and Joint Surgeons sued CNA in federal court (S.D.N.Y.) seeking coverage under the “all-risk” policy for alleged COVID-19-related business losses. Plaintiff alleges government orders required it to shut down its main office until it was able to develop and deploy adequate safety measures to assure the safety of its patients. Complaint at ¶6. As a result of the shutdown and development of additional safety measures, Plaintiff asserts it suffered business losses and incurred additional expenses. The Complaint asserts CNA wrongfully denied the submitted claim under the policy’s Business Income, Extra Expense, and Civil Authority provisions. Plaintiff seeks damages in connection with a claim for breach of contract. 

JD Cinemas sued Northfield Insurance Company in New York state court (Suffolk County) seeking coverage for COVID-19 related business losses. Plaintiff asserts it was required to cease operation in response to New York State Executive Order No. 202.3 and has suffered a loss under the policy as a result. Complaint ¶¶20—23. Plaintiff alleges Northfield wrongfully denied coverage under the policy and Plaintiff seeks damages in connection with a claim for breach for contract.

A restaurant group sued Oregon Mutual Insurance Company in California state court (San Francisco Cty.) alleging the insurer wrongfully denied its claim for business interruption losses due to California’s COVID-19 closure orders. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverages, and does not contain a virus exclusion. The complaint alleges that Oregon Mutual denied the claim “without performing a full, fair, and balanced investigation,” and that the denial “was erroneously based on the COVID-19 event, and failed to acknowledge the losses caused by the governmental orders which were the basis of [plaintiff’s] claim.”

The owners of Alabama walk-in medical clinics sued The Cincinnati Insurance Company in federal court (S.D. Ala.) alleging the insurer wrongfully denied their claims for business interruption losses due to Alabama’s COVID-19 closure orders. The “all risk” policies allegedly provide building and personal property, business income, and extra expense coverages. The complaint alleges that the clinic provided evidence to Cincinnati that an individual infected with COVID-19 was present on the insured premises, and that this evidence, coupled with Alabama’s closure orders, “created a direct physical loss of [the insured] premises because the premises were thereby rendered physically unusable for their intended purpose.”

New Business Interruption Class Action Filings:

Two dental offices filed a class action complaint against The Hartford Financial Services Group, Inc., Hartford Casualty Insurance Company, and Twin City Fire Insurance Company in federal court (S.D. Fla.) for declaratory relief. The “all risk” policies allegedly provide business income, extended business income, extra expense, business income from dependent properties, and civil authority coverage. Complaint at ¶¶ 20-30. The Complaint alleges that the scientific community recognizes COVID-19 “as a cause of real physical loss and damage” and that contamination of insured property “would be a direct physical loss requiring remediation to clean the surfaces within the Insured Property. Id. at ¶ 36. The insurers allegedly have “systematically denied and continued to deny and refuse to provide payment for insurance claims for coverage for similar losses and expenses by insureds holding policies that are, in all material respects, identical.” Id. at ¶ 3. The proposed nationwide classes are defined as: (1) “[a]ll persons and entities with Business Income coverage under a property insurance policy issued by Defendants that suffered a suspension of business due to COVID-19 at the premises covered by the business income coverage;” (2) “[a]ll persons and entities with Civil Authority coverage under a property insurance policy issued by Defendants that suffered loss of Business Income and/or Extra Expense caused by a Closure Order;” (3) “[a]ll persons and entities with Extra Expense coverage under a property insurance policy issued by Defendants that sought to minimize the suspension of business in connection with COVID-19 at the premises covered by their property insurance policy;” and (4) “[a]ll persons and entities with Business Income from Dependent Properties coverage under a property insurance policy issued by Defendants that suffered an actual loss of Business Income caused by direct physical loss or physical damage at a dependent property or properties.” Id. at ¶ 61.

The owner of a salon in Pennsylvania sued Erie Insurance Exchange on behalf of itself and all others similarly situated in Pennsylvania state court (Allegheny County), asserting claims for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶15-25. The class is defined as all Pennsylvania policyholders who purchased commercial property coverage from the defendant “and who have been denied coverage under their policy for lost business income after being ordered by a governmental entity, in response to the COVID-19 pandemic, to shut down or otherwise curtail or limit in any way their business operations.” Id. at ¶49. The Complaint alleges that the defendant refused to provide coverage for the plaintiff’s claim, and that it “has similarly refused to, or will refuse to, honor its obligations under the “all risk” policy(ies) purchased by” the plaintiff and class members. Id. at ¶¶4-5.

The owner of a bar and restaurant in Washington state sued Tri-State Insurance Company of Minnesota on behalf of itself and all others similarly situated in federal court (W.D. Wash.), asserting claims for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extended business income, extra expense, and civil authority coverage. Complaint at ¶¶14-16. The complaint alleges that the defendant wrongfully denied the plaintiff’s claim for coverage, and “has denied and will deny coverage to other similarly situated policyholders.” Id. at ¶¶37-39. The nationwide class is divided into declaratory relief and breach of contract subclasses. Id. at ¶41.

A café filed a class action lawsuit against Oregon Mutual Insurance Company in federal court (N.D. Cal.) alleging the insurer wrongfully denied its claim for business interruption losses due to California’s COVID-19 closure orders. The “all risk” policy allegedly provides business income, extended business income, extra expense, civil authority, and business income from dependent property coverages, and does not contain a virus exclusion. The complaint alleges that “Oregon Mutual has systematically denied and continues to deny and refuses to provide payment for insurance claims” for losses due to COVID-19, and that such denials are “[i]n violation of the Policy’s plain language and [Oregon Mutual’s] own contractual obligations.”

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Laura Foggan
Partner – Washington, D.C.
Phone: +1 202.624.2774
Email: lfoggan@crowell.com
Adam J. Singer
Associate – Washington, D.C.
Phone: +1 202.688.3508
Email: asinger@crowell.com
Austin J. Sutta
Associate – San Francisco
Phone: +1 415.365.7404
Email: asutta@crowell.com