Insurers challenged for denying business-interruption coverage during coronavirus economic lockdown
I n a shot over the bow and precursor of a long, upcoming legal battle, the California insurance commissioner on April 14 issued an order requiring carriers to investigate claims filed by businesses seeking relief for losses incurred from government shutdowns as the result of the COVID-19 virus.
Commissioner Ricardo Lara’s order mandates the insurer “communicate the denial in writing to the policyholder listing all the legal and factual bases for such denial.”
North Bay attorneys have weighed in, with a firm in Novato filing last week a class-action suit in federal court out of Las Vegas on behalf of a restaurant chain against two insurance carriers.
The Brayton Purcell firm awaits a judge’s decision to grant a jury trial in Egg Works' case against Acuity, based in Wisconsin, and Tokio Marine, located in New York. Both carriers fall under the corporate arm of U.S. Specialty Insurance.
The businesses are seeking to recover losses through their business interruption insurance after Nevada Gov. Steve Sisolak issued a stay-at-home order and shuttered the Egg Works restaurants that serve 150 tables and employ 400 Clark County residents.
The complaint claims breach of contract and a default of good faith by the insurance carriers.
“Defendant expressly agrees to pay for loss of gross revenue incurred as a result of the perils not excluded under the policy,” the complaint reads. “Defendant promised to pay for losses of business income sustained as a result of a business interruption.”
Numerous calls to the insurance carriers were unreturned. Egg Works owner Brad Burdsall was unavailable for comment.
But his North Bay attorney, Gil Purcell, laid out what he perceives as a promising argument that may set a precedent so monumental it could either force the insurance industry to collapse or leave scores of businesses sustaining huge losses out in the cold.
“This is a large challenge, with multiple facets,” Purcell told the Business Journal, further acknowledging how influential the insurance industry is. “But they’re being asked to perform what they’re paid to do.”
Business-interruption insurance is an optional coverage that may be bought as part of a comprehensive multi-peril commercial policy, one for business owners or as stand-alone protection. It’s expensive coverage as most commercial policies go, increasing the cost of business coverage by a minimum of $50,000 up to $150,000 a year, said Purcell.
Purcell contends these policy claims should be paid because the businesses were following a government mandate.
“This is not virus-related. You are shut down because of the risk of it, acting on (the government’s) civil authority,” he said.
Like other North Bay attorneys, Purcell expects insurance companies to claim the policy has no bearing on covered losses from the coronavirus — with some insurance carriers writing in recent virus exclusions to eliminate having to provide further interpretation.
Purcell admitted “it’s hard to say” whether winning a favorable judgment on a case involving business interruption insurance can influence other cases without the modular coverage.
“That’s certainly a concern,” he said.
If indeed that happens, many watching the legal battle see a dilemma playing out. Either the insurance industry may collapse under an insurmountable amount of payments on claims and therefore need a bailout from government or small businesses go under at an alarming rate because there is no safety net to help them deal with losing most of their income.