In the age of new coronavirus, it is important to identify areas in which your insurance business might be threatened by a lawsuit for failing to provide coverage in the aftermath of (the first wave of) non-essential business shutdowns. Many non-essential businesses that were shut down by state or local governments have looked to their business interruption or business income insurance for relief. This type of coverage is typically included in a property insurance package. Most, however, have faced resistance from their insurers when it comes to paying claims related to the pandemic. Generally, in order for coverage to be triggered, these policies require: |

• Direct physical loss or damage;
• To covered property;
• Arising out of a covered peril; and
• Resulting in the suspension of the business' operations.

In cases where it is determined that coverage is triggered, an insured business may be entitled to recover the net income that it would have been generated if the interruption had not occurred along with the operating expenses during the period in which operations were suspended. The main issue that courts must decide in addressing these claims is whether businesses whose operations were shut down during the crisis can demonstrate "direct physical loss or damage." Another obstacle for insureds is the virus exclusion. The virus exclusion was first seen after the 2002-2003 SARS outbreak, which led to millions of dollars in business interruption claims, mostly in Asia. As a result, many insurers added exclusions to standard commercial policies for losses caused by viruses or bacteria. The following are some of the most common types of lawsuits being filed against insurers for failing or refusing to cover business income losses caused by the coronavirus pandemic. Notable cases also are described in the slideshow above. |

Last call for alcohol

Thousands of bars and restaurants nationwide were affected by the current pandemic crisis. Hundreds of restaurant owners and ownership groups have filed lawsuits against their insurance carriers as a result of the denial of business interruption claims. Restaurants pose an interesting challenge to the courts. Many did, in fact, shut their doors completely during the early days of the pandemic. But with millions of people hunkering down at home, the demand for drive-thru and takeout food skyrocketed. The fast-food chain Wendy's reported in a recent financial update that drive-thru business grew by about 90% during the first half of the year. Accordingly, restaurants that can accommodate drive-thru sales, takeout, outdoor dining and now, spaced indoor dining managed to hang onto significant sales during the pandemic. Although doing business through these methods may not provide the same level of revenue, the fact that they were able to prepare food at any capacity refutes arguments that they suffered direct physical loss or damage, from an insurance standpoint. Consider this one: Gavrilides Management Co. et al. vs. Michigan Insurance Co. Early in July, we saw the first decision out of a state court considering a restaurant, business interruption losses, and the COVID-19 pandemic. In Gavrilides Management Co. et al. vs. Michigan Insurance Co., the plaintiff alleged that the physical requirement of the policy was met because customers could not physically use the dine-in services. The judge denied this allegation, determining that in order to meet the requirement, the insured must show a physical alteration to the premises. |

The doctor was out

Another sector of business that was disproportionately impacted by the government-mandated shutdowns was elective healthcare. This category includes all medical, dental, or veterinary voluntary or elective surgeries and procedures. Nearly all health and dental appointments and "elective" surgeries were postponed until after the non-essential business bans were lifted. Because of these closures, those businesses suffered losses. Consider the following: BA Ventures LLC, Pacific Clearvision Institute, PC. v. Farmers Insurance Exchange Similarly to the case above, the Pacific Clearvision Institute ophthalmology clinic sued Farmers in Oregon state court for wrongful denial of its claim for business interruption losses that occurred because of executive orders issued by the Governor of Oregon. In the complaint, the eye clinic states that the majority of its business came from procedures and appointments that were considered "non-urgent" and thus had to be canceled, as they were prohibited under the governor's orders. In short, the eye clinic claims it was to conduct normal procedures, which resulted in losses that should have been covered under the business income and extra expense provisions of their insurance policy. Back2Health Chiropractic Center, LLC, individually and on behalf of all others similarly situated, v. The Hartford Financial Services Group, Inc. In this case, the chiropractic center sued Sentinel Insurance Co. in federal court in New Jersey in a class-action lawsuit for business interruption losses related to the COVID-19 civil authority closures. The chiropractic center alleges that the all-risk commercial property policy that it had in place provided coverage for business interruption and extra expense, and coverage for the actions of civil authorities. This complaint also alleges that the virus exclusion does not apply in the context of a global pandemic. |

Shopaholics woes

Brick-and-mortar shopping virtually ceased when coronavirus non-essential closures took effect. Only grocery stores and pharmacies avoided shuttering. Thousands of shops close, and many will not return. Here is a sampling of the resulting insurance lawsuits. Daneli Shoe Co. DBA Footwear Etc., v. Valley Forge Insurance Co. Daneli is a retail shoe company that sued its insurer, Valley Forge Insurance Co., in California state court, alleging that Valley Forge wrongfully denied its claims for business interruption losses due to state closures spurred by COVID-19. The complaint alleges that even though the company is able to maintain sales of footwear online, the state-mandated closure of its eleven brick-and-mortar stores caused a substantial loss in business income that will continue into the foreseeable future. Mayssami Diamond, Inc. v. Travelers Casualty Insurance Co. of America Mayssami Diamond, Inc. sued its insurer in California state court, alleging that Travelers wrongfully denied its claim for business interruption losses after California closed non-essential businesses due to COVID-19. The complaint alleges that the policy specifically includes fungi, bacteria, and virus coverage and that the property loss suffered was due to the closure orders and the theory that infectious virus droplets could be present on surfaces and objects around the jewelry shop. The complaint also alleged that every surface and object in the store was implicated. |

Uncoiffed, unpolished

Salons and barbershops also shut down nationwide to mitigate the spread of the coronavirus. Despite changes to unemployment procedures allowed stylists and the like to collect enhanced unemployment during the pandemic, the shutdowns kickstarted illegal, in-home beauty services. Such defiance of salon closures led to arrests, fines, and license revocations. Some salon owners still relied on their insurance policies to provide coverage for the income lost due to coronavirus closures. Here's an example: Barbara Lane Snowden, DGA Hair Goals Club v. Twin City Fire Insurance Co. Although not a salon or barbershop, Hair Goals Club is a wig shop intended to help women who lost their hair during chemotherapy. Wigs improve cancer patients' quality of life, but getting a wig requires spending time in the wig store to make and fit the hairpiece, a process not unlike a salon service. Barbara Snowdon opened Hair Goals Club in November 2019, just to turn around and shut the doors in March 2020 after local officials ordered all non-official services to close. Snowdon had purchased an insurance policy covering unexpected losses, but quickly received a denial of the claim from her insurer, who sited the lack of physical damage as the reason. |

Vacation: All we ever wanted

The leisure and hospitality industry suffered substantial losses in revenue in the wake of coronavirus and continues to weather economic uncertainty in the months ahead. According to the American Hotel and Lodging Association, since the beginning of the pandemic, thousands of hotels have closed for good. The hospitality industry reportedly lost more than $40 billion in room revenue since between February and August. The impact of COVID-19 on the travel industry is predicted to be nine times worse than 9/11. Nola Group Hotel LLC v. Starr Surplus Lines Insurance Co. Here, the policyholder, Nola Group, runs six hotels in New Orleans. The suit, filed in federal court in New Orleans, argues that government-imposed restrictions that intended to limit the spread of COVID-19 caused Nola Group to suffer direct physical damage. The group had an all-risk policy that provided coverage for all risks unless the risk was specifically and clearly limited or excluded by the policy. |

Stay tuned

Although these claims cover a wide range of industries, the dominant conflict is the same. Companies are claiming that they believed they were paying premiums for insurance that would provide them coverage when a loss occurred, which includes an unforeseen catastrophe like the pandemic. So far, courts have ruled in favor of insurers in cases of business interruption coverage vs. COVID-19. But the vast majority of these cases are still yet to be seen.