As businesses look for relief from their insurers amid the COVID-19 pandemic, they could be bracing for battle because firms may not pay out on business interruption claims.
Legal action filed on behalf of Napa Valley restaurateur Thomas Keller is among the cases shining light on the issue. Similar litigation has followed by restaurant owners in Chicago, Miami and other parts of the country, and a group of more than 1,000 hospitality industry leaders recently formed the Business Interruption Group (BIG) to press insurance companies to honor business interruption claims by tapping into its $822 billion in cash reserves.
Some policies have virus exclusions but not all, John Houghtaling, lead counsel for BIG and managing partner of Gauthier, Murphy & Houghtaling LLC, told the Northern California Record.
“Thomas Keller’s policy has virus inclusion, and they’re still not paying it,” Houghtaling said. “We’re not trying to change the policies; we’re saying they should be honored.”
The policy also covers business losses incurred by government shutdown, according to the Complaint for Declaratory Relief filed in Napa County Superior Court on March 25.
“Under the policy, insurance is extended to apply to the actual loss of business income sustained and the actual, necessary and reasonable extra expenses incurred when access to the scheduled premises is specifically prohibited by order of civil authority,” the complaint states.
The civil authority order automatically triggers coverage, Houghtaling said, adding that they are hoping to resolve the issue without extensive litigation. “They [insurance companies] need to come to the table and do the right thing.”
Houghtaling said they have also spoken with President Trump.
“Why were we able to get the President of the United States on the phone? Because he recognizes that we have to do something and that this is an incredible emergency.”
Houghtaling, who initially filed suit on behalf of the New Orleans restaurant Oceana Grill said, “I’ve had a leadership role in just about every disaster since Katrina. This happens in every single storm and now it’s happening with this. I want the system fixed. Every time this happens, the insurance companies drag their feet.”
Many businesses have business interruption coverage, but when it comes to payouts, it really depends on the actual policy wording, Alan Lyons, chair of the Insurance and Reinsurance Group at Herrick Feinstein LLP, told the Record.
“What businesses can do is they need to review the policy in detail as to what the scope of coverage is, and in many cases, they should submit the claims,” Lyons said.
“Many courts have held there has to be structural damage but there are other courts in several states that have held you don’t need to have structural damage; all you need is to show the property is unusable or uninhabitable.”
“However, physical damage has not yet been interpreted by U.S. courts in the context of a virus,” Lyons said, “and there are several lawsuits now seeking a ruling on that issue. Every day, there seems to be another lawsuit filed against an insurer.”
“What we may see is different states will interpret the issue in different ways, which could lead to a precedent that uninhabitability is sufficient in certain states.”
The civil authority argument also could apply, Lyons said. “With orders by the government to restrict businesses, there may be an argument that it wasn’t the virus it was the governmental order,” Lyons said.
Matthew Sturdevant, a spokesman for Keller’s insurance company, The Hartford, declined to comment on the litigation. He referred the Record to the American Property Casualty Insurance Association (APCIA), an industry trade group, which provided an April 6 press release, but no further response.
“Many commercial insurance policies, including those that have business interruption coverage, do not provide coverage for communicable diseases or viruses such as COVID-19,” APCIA President David Sampson said in the release.
So far, six states – Pennsylvania, New York, New Jersey, Massachusetts, Ohio, and Louisiana – have introduced legislation in recent weeks that would compel insurers to honor business interruption claims.