A group of Kansas and Missouri hair salon and restaurant owners could continue with a lawsuit seeking to pay their insurance company for the income they are missing out on COVID-19 governments for closing government, a judge ruled Wednesday.
The companies adequately insisted – to say the least – that they should be covered by their “all-risk” insurance policies, ruled Stephen Bough of the District of Missouri after challenging the wording of insurance policies.
The ruling could have broad implications as more companies prosecute their insurance carriers for refusing similar claims, observers say.
Business interruption insurance replaces lost income if a company has to close its doors temporarily. The policy kicks in when there is “immediate physical loss or damage.” This typically applies to events including burst pipes, fires or damage caused by a nasty storm.
That kicks in when companies close their doors under government orders to slow the spread of an invisible, communicable virus? And is it applicable if many policies may include exclusions for coverage in connection with virus outbreaks?
In the first few decisions on coverage of business interruption amid the pandemic, three judges sided with carriers and dismissed the cases.
Bough’s decision marks the first time a judge has decided to let companies go ahead with their case.
The Cincinnati Insurance Company’s policy deals with “physical loss” or “physical damage”, the companies claim in legal documents.
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‘COVID-19 all attached to and dismissed Plaintiff from their property, making it’ unsafe and unusable, resulting in immediate physical loss to the buildings and property. ‘ ‘
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But Bough notes that the carrier did not define a “physical loss,” so he had to make his own interpretation.
“COVID-19 all attached to and dismissed Plaintiff from their property, making it ‘unsafe and unusable, resulting in immediate physical loss to the buildings and property,'” the judge wrote.
That policy did not preclude economic fallout from viruses, he noted.
The salons and restaurants, including cafes and an Italian restaurant, follow a range of Kansas and Missouri city and state closure orders that run from March to May, according to court papers.
The seven companies that filed the lawsuit have just passed an initial hurdle and the case is not over, Bough noted. But one lawyer said it was an important first step.
“It’s an enormous decision for policyholders to use in other cases as persuasive authority,” said Kim Winter, a partner at Lathrop GPM, where she represents insurance holders in coverage disputes.
Although Winter does not represent a site in this lawsuit, it does negotiate the same type of coverage request for other business clients. At least 1,000 lawsuits have been filed in connection with insurance coverage amid the pandemic, they estimate.
The cases sometimes depend on dry questions such as policy language, but the stakes can be high in these lawsuits, Winter said. “It can be the difference between companies going out of business when there is no insurance money,” Winter said.
It is also a serious matter for the insurance sector. One industry expert told federal lawmakers in May that carriers could not and did not have to pay these claims for several reasons.
Given this unpredictability and truly unpredictable potential for loss, insurance simply cannot endorse or cover a pandemic like COVID-19. This concept is explicitly evident in standard business interruption policies, ”said Sean Kevelighan, CEO of the Institute for Information Performance, an industry-funded consumer education association.
Rewriting a contract as an insurance policy is “unconstitutional” and retroactive payments for business interruption “would make insurance bankrupt,” he told members of the House’s Small Business Committee.
One-third of small businesses have a business disruption policy, according to Kevelighan.
Brandon Boulware, one of the attorneys representing the companies in Kansas and Missouri, called Bough’s ruling “a major gain … and an important first step in forcing Cincinnati Insurance to stand by its policies and pay. “Cincinnati policies are an ‘all risk’ policy and do not exclude losses caused by a virus. The court order recognizes that. We look forward to progress in this matter.”
In a brief decision issued on the same day – indicating the decision on the salon and restaurant case – Judge Bough allows the business entity, which has wholly or partly at least four bar and grill establishments, to continue with a separate case against Cincinnati Insurance.
Cincinnati Insurance Company CINF,
told MarketWatch that it would eventually happen.
“We respect the legal process. If this case continues, we believe the court will eventually uphold the language of our policy contract. Our commercial property insurance policies require immediate physical damage or loss of property and do not cover this case, ”said a spokeswoman.
While these insurance cases and others weigh through the legal system, federal lawmakers are addressing another legal question – how much liability protection companies and schools should have against lawsuits claiming coronavirus exposure.
Republicans want to include a “responsible shield” with every new incentive bill, but Democrats oppose the idea.
The proposed shield would make legal standards difficult to win in court. Opponents say it is not necessary because there is no wave of cases of personal injury related to COVID-19, but proponents say companies need the protection before they are charged, not after completion.
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