An upcoming judgment in a federal court business interruption case could set precedent for how hundreds of insurance claims resulting from the COVID-19 pandemic get resolved.
After the state of Florida in March issued executive orders related to the coronavirus that effectively suspended operations at bars and restaurants, the Prime Time Sports Grill in Tampa filed a business interruption claim with its insurer, Certain Underwriters at Lloyd’s London, according to the Plaintiff’s Response to Defendant’s Motion To Dismiss, filed May 11 in U.S. District Court for the Middle District of Florida.
“[T]he Insurer’s motion to dismiss is due to be denied and Prime Time is entitled to a declaration that the policy provides coverage, because the policy of insurance demonstrates that (1) the Insurer specifically undertook to indemnify Prime Time for ‘loss of’ or ‘damage to’ ‘business income and operating expenses, including payroll’—both of which are specifically scheduled as insured ‘property’ under the policy, (2) sustained by Prime Time in direct consequence of the happening of any accident, misfortune, or other fortuitous event, including the governmental suspension orders at issue in this case,” plaintiff’s attorney Michael V. Laurato wrote in the response.
The adjudication could affect hundreds of other suits filed by businesses whose insurers have declined to cover losses incurred amid the COVID-19 pandemic.
“In my client’s case, the governor of the state of Florida closed down businesses and as a result, he lost money, his business was interrupted,” Laurato told the Northern California Record.
“No question there’s a causal relation between the governmental order and the loss of business,” Laurato added.
An amicus brief filed May 18 by United Policyholders attorney Matthew Weaver states, “Contamination, suspected contamination, and/or the imminent threat of contamination of COVID-19 all constitute ‘physical loss and damage’ under a property insurance policy. Structural alteration of the property is not required for ‘physical loss and damage’ where the property can no longer serve or is unsafe for its intended purpose. United Policyholders respectfully requests this Court consider these issues, ubiquitous in nearly every COVID-19 business interruption and civil authority case nationwide, in denying Defendant’s motion to dismiss.”
So far, seven states have introduced legislation to compel insurance companies to cover claims brought during the current pandemic. And among bills under consideration by federal legislators is PRIA – the Pandemic Risk Insurance Act of 2020 – which would create a federally backed insurance backstop for losses exceeding $250 million nationwide.
A hospitality industry coalition also has formed the Business Interruption Group (BIG) to urge insurance companies to honor business interruption claims by tapping into its more than $800 billion in cash reserves.
“I think that absent a federal solution we are going to see a huge amount of litigation that’s going to continue,” John Houghtaling, lead counsel for BIG and managing partner of Gauthier, Murphy & Houghtaling LLC, told the Record. “The insurance companies are going win some of these and lose some of these depending on the policy language. Some policies have pandemic exclusions but not all.
“And there are policies that have no exclusions or have clear coverage for civil authority coverage,” added Houghtaling, who is also representing the Simon Wiesenthal Center, headquartered in Los Angeles, in its Business Interruption case.
Laurato says Prime Times’s all-risk policy is covered, that the defense is basing its arguments on a narrow technicality and semantics that overlook the business interruption was caused by order of civil authority, resulting in loss of income that is covered under the policy.
“My client has owned this place for 25 years. It’s their whole life, it’s how they earn a living,” Laurato said. “A governmental order shut down your business and you lost money – how is that not a loss? I can understand they argue against it, so they knew exactly how to say it, but it comes down to something being very, very simple – this business was insured. The law should be same in California as it is here, there’s coverage,” Laurato added.
Mark D. Tinker, an attorney for Lloyd’s, declined to provide a request for comment.
“That these policies can’t be covered is this idea that has been pushed out by the insurance industry; it’s just factually not true. We’re saying we want you to honor these policies, honor your word. The Simon Wiesenthal Center has paid Chubb for decades and now that they need it, they can’t get it and they have civil authority shutdown coverage,” Houghtaling said.
California Insurance Commissioner Ricardo Lara has ordered insurers to objectively address all claims.
“I want to be absolutely clear that insurance companies need to fairly investigate all business interruption claims as they would during any disaster,” Lara said in a news release. “Policyholders deserve all the services, coverage, and benefits they are due under their policy.”
On Thursday, the American Property Casualty Insurance Association (APCIA) and two other insurance industry trade groups in a news release unveiled a proposal for a federal program, the Business Continuity Protection Program (BCPP), that would help businesses address financial challenges in future pandemics.
In an email response to the Record, David Sampson, APCIA president and CEO, said, “We look forward to engaging in policy discussions with policymakers and policyholders to ensure there is immediate relief during future pandemics. Any prospective pandemic program must work for all stakeholders.”
The May 4 motion to dismiss in the Prime Time case appears to be the first filed in a business interruption lawsuit, and remains pending before U.S. District Judge Charlene Edwards Honeywell.
“Given the publicity about these cases, it is likely that the motion to dismiss will be decided fairly quickly,” Larry Schiffer, senior partner with Squire Patton Boggs said in an email response to the Record.
“Once we start getting decisions, you could see an avalanche of these cases or it could slow down," Schiffer added.
In another amicus brief, filed Friday, Royal Stays Miami asked the court to consider the impact the Prime Time case could have on pending motions to consolidate similar cases before the Judicial Panel on Multidistrict Litigation (JPML).
“A stay of these proceedings pending a decision from the JPML will preserve resources and judicial economy, and avoid inconsistent rulings and piecemeal litigation,” the brief states.
The JPML denied an earlier motion to expedite the Multidistrict (MDL) proceedings, and its decision on whether to consolidate the cases is not expected until June or July.