Suit Against Insurers for Coverage of Pandemic Business Losses May Proceed

Chris Gaetano
Published Date:
Aug 14, 2020

A federal judge in the Western District of Missouri has ruled that a lawsuit filed by a group of hair salon and restaurant owners against their insurance companies, which had said they were not responsible for losses during the pandemic, can proceed, setting up a showdown over who is responsible for economic losses in the COVID-19 era, said MarketWatch. The judge, Stephen Bough, said that the wording of the plaintiffs' policy supports the assertion that the insurance company is liable for business interruption claims. The policies cover "physical loss" or "physical damage," but the judge noted that they never actually define these terms. By his own interpretation, the pandemic deprived the plaintiffs of their property, as it was unsafe and unusable, which he believed counted as a physical loss.

Insurance companies have been fighting hard to avoid having to pay customers for pandemic losses, usually via the physical loss or damage argument that the defendants in this case advanced. Behind their efforts is a concern that covering pandemic losses for businesses could threaten the insurance companies' ability to remain solvent, as the trade group American Property Casualty Insurance Association estimates that it would cost the industry between $255 billion to $431 billion a month to compensate businesses for income lost and expenses owed due to virus-led shutdowns.

MarketWatch said that courts have thrice now sided with the insurers against the business owners, and that this ruling represents the first time they did not. Kim Winter, a partner at Lathrop GPM who represents policyholders in coverage disputes but is not involved in this case, told MarketWatch that this is just the first step, as the judge only allowed the suit to go forward; the plaintiffs will still need to actually win the case before businesses can receive their claim money.

Tom Baker, a professor of law at the University of Pennsylvania, who has been following  cases against the insurance industry amid COVID-19, told the Kansas City Star, “This is potentially huge," adding, “My prediction is that this is not going to be the only case that is going to survive. This is a big deal.”

“This is a significant win for insureds,” Brandon Boulware, the attorney for the plaintiffs, said in an email statement to the Star. “The Cincinnati policy … does not contain any exclusion for losses caused by the virus. The Court’s order correctly recognizes that. We look forward to moving ahead with this case.”

Betsy Ertel, a spokeswoman for the insurance company, said in an email to the Star, “As this case continues, we believe that the court will ultimately enforce the language of our policy contract. Our commercial property insurance policies require direct physical damage or loss to property and do not provide coverage in this case.”


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