NEW POLL: Federal Solutions—Not Trial Attorney Litigation—Are Best For Much Needed Business Relief

As policymakers return to Washington and debate how to best help the economy recover from the COVID-19 pandemic, one thing is certain: American businesses need a government-backed solution to get our economy back on its feet.

Recent polling conducted by CivicScience and initiated by FAIR illuminates how the American public is thinking about this crisis and the road ahead:

  • The majority of Americans believe the government should bear the financial responsibility for helping businesses stay afloat during the pandemic.* A government-backed policy solution can provide immediate relief to struggling business owners and protect insurers’ ability to keep promises to policyholders for covered catastrophe losses, like damage from wildfires and hurricanes.
  • Only 16% of Americans believe insurance companies should bear the responsibility for helping businesses during this unprecedented time.* Business interruption insurance contracts were not priced to cover global pandemic risks, so forcing insurers to pay for claims their policies weren’t priced to cover would harm all policyholders. 
  • Only 8% of Americans say trial lawyers’ lawsuits against insurers is the best path for businesses to secure financial relief.* Trial attorneys’ attempts to retroactively force uninsurable pandemic coverage in business interruption insurance contracts is detrimental to policyholders, communities, insurers, and economic growth.

One thing is clear—Americans across the country widely recognize that only the federal government can provide the true relief business owners need. Business interruption insurance was never intended to cover global pandemic risk. The sheer scope and magnitude of loss associated with a pandemic of this nature is unprecedented and extends far beyond the ability of the insurance business model to address, and that’s what makes it uninsurable.

This fall, it is imperative that policymakers put in place the policies needed to help us recover from the massive economic damage COVID has caused to businesses of all sizes across the country. While there are no shortage of political distractions, the urgency for a government-backed solution for struggling businesses in need of relief has never been greater.

*Polling conducted by CivicScience and all commentary is attributed to FAIR.

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Another Court Agrees: Business Interruption Insurance Does Not Cover Pandemic-Related Losses

Late last week, the U.S. District Court for the Eastern District of Michigan ruled in favor of insurers in a business interruption lawsuit filed by a Michigan chiropractic practice. 

“‘Accidental direct physical loss to Covered Property’ is an unambiguous term that plainly requires Plaintiff to demonstrate some tangible damage to Covered Property,” wrote Judge Thomas Ludington in his decision. “Because Plaintiff has failed to state such damage, the complaint does not allege a Covered Cause of Loss.”

The plaintiff sought coverage on COVID-related business losses as well as damages from the insurers’ alleged breach of contract based on its “all risks” business interruption insurance policy, which had an virus exclusion. Even if business interruption losses were caused by accidental direct physical loss, the Judge further explained, the virus exclusion still applies.

The number of federal and state courts that have noted the absence of physical damage, required in business interruption claims, is approaching double-digits. The growing list includes federal courts in FloridaCaliforniaTexas, and New York, as well as the Eleventh Circuit and courts in the District of Columbia and Michigan.

You can read more on the latest Michigan federal court ruling here and here.

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Another Court Rules In Favor Of Upholding Business Interruption Insurance Contracts

Yet another court ruled in favor of insurers recently in the ongoing dispute over business income (interruption) insurance (BI) today. From Business Insurance:

“The virus exclusion in a dentist’s commercial insurance policy with a unit of Nationwide Mutual Insurance Co. bars coverage for coronavirus-related losses, a federal court ruled Wednesday.” 

Today’s decision from the U.S. District Court for the Middle District of Florida in Fort Myers adds to the growing list of rulings decided in favor of insurers, and delivers a clear win for the integrity of contracts. Efforts to reinterpret or retroactively change provisions in insurance contracts have met fierce resistance in courts across the country. From the ruling:

“‘Because [the plaintiff’s] damages resulted from COVID-19, which is clearly a virus, neither the Governor’s executive order narrowing dental services to only emergency procedures nor the disinfection of the dental office of the virus is a “Covered Cause of Loss” under the plain language of the policy’s exclusion,’ the ruling states.”

Read more here, via Business Insurance.


Wall Street Journal: Judicial Rulings Overwhelmingly Back Insurers In Business Interruption Cases

Insurers have won more rulings than policyholders in recent weeks, as courts begin to work through more than 1,000 business interruption (BI) disputes filed since the beginning of the pandemic.

Judges in Michigan and the District of Columbia, as well as federal courts in Texas and California were among those who ruled against plaintiff attorneys’ attempt to force insurers to pay out COVID-19 claims.

“The initial decisions indicate, on the whole, these cases can ultimately be resolved consistent with insurers’ underwriting intent as reflected in the language of the policies,” observed Bryce Friedman, an insurance lawyer with Simpson Thacher & Bartlett.

In fact, the array of clear cut rulings may have discouraged further attempts at litigation. According to University of Pennsylvania Carey Law School’s litigation tracker, the number of COVID-19 coverage-related lawsuits have drastically decreased since the beginning of August.

You can read the full analysis on The Wall Street Journal here and below.

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Insurance Firms Gain Early Lead in Coronavirus Legal Fight With Businesses
By Leslie Scism, Sep. 1, 2020

U.S. property insurers have won a flurry of judicial rulings backing up their rejections of claims for businesses’ lost income during government-ordered shutdowns, dimming policyholders’ hopes of payments to help them rebound.

In recent weeks, insurers have won more rulings than policyholders as the courts begin to work through more than 1,000 Covid-19 business-interruption coverage disputes.

Still, policyholders scored success in a federal court in Missouri, boosting efforts to interpret property insurance as covering claims from the coronavirus.

Across the U.S., restaurants, hair salons, retailers and other businesses are seeking policy proceeds to deal with the huge economic cost of the shutdowns, in one of the biggest fights the insurance industry has ever waged with its policyholders.

In the rulings, the judges sympathize with businesses’ plight, but most so far support insurers’ legal arguments.

Insurers say the policies are intended to help policyholders as they recover from events, such as fires, that lead to repairs and rebuilding, and were never intended to cover virus-related claims.

So far insurers have prevailed in state courts in California, Michigan and the District of Columbia, and in federal courts in Texas and California, according to a Covid-19 litigation-tracking effort at the University of Pennsylvania Carey Law School. On Thursday, a federal magistrate judge recommended the dismissal of a lawsuit brought by a Miami restaurant.

Those actions follow a May hearing where a Southern District of New York federal judge said she would rule against a magazine publisher seeking to force an insurer to pay a Covid-19 claim. The policyholder’s lawyer withdrew the case before the judge issued a written opinion.

“We are at an important inflection point,” said Randy Maniloff, an attorney at White & Williams LLP, who represents insurers. “If the score continues to be lopsided, the decisions will become a strong headwind for policyholders trying to convince judges to see the issues differently.”

However, policyholders’ lawyers say that many states have yet to rule, and appeals could undo some of insurers’ early wins.

“There are a few states that have favorable law on certain key issues, and many do not,” said Alexandra Roje, a partner with Lathrop GPM LLP, who represents policyholders. Until the states more favorable to policyholders deliver rulings, “we won’t know which way the wind is blowing,” she said.

Business-interruption coverage is a subset of property insurance, and with limited exception insurers say they didn’t collect premiums for virus-related claims. Pandemics, they say, violate a cardinal principle of insurance: Large numbers of policyholders pool their risk to finance a few losses in a given year, while policyholders suffer losses simultaneously during a pandemic.

Many policies specifically exclude claims stemming from viruses. Among challenges for policyholders in policies without the specific exclusions, business-income coverage typically requires “direct physical loss or damage” to have caused the interruption. Over the years, many courts have interpreted this to mean tangible or structural damage to property.

To clear this hurdle, hotel company The Inns by the Sea asserts in its lawsuit in Monterey County, Calif., that the coronavirus is a “hazardous physical substance that permeates the air and sticks to surfaces, and causes both physical loss of and damage to property,” Michael Reiser, one of the hotelier’s lawyers, said in an interview.

The business is appealing the Aug. 6 ruling against it, he said.

In their lawsuits, plaintiffs are drawing on past rulings in which judges concluded that things like wildfire smoke, gasoline vapors and carbon monoxide created property damage.

Still, in a typical example so far, U.S. District Judge David Ezra dismissed a case brought by San Antonio-area barbershops after concluding that a direct physical loss requires a “distinct, demonstrable, physical alteration of the property.”

The plaintiffs will appeal. “We believe that our clients have suffered physical loss,” said their lawyer, Shannon Loyd.

Insurers generally contend that any danger posed by the coronavirus can be wiped away with household cleaners.

In two cases in federal court in Missouri, a judge rejected insurer Cincinnati Financial Corp.’s motion to dismiss the litigation.

Judge Stephen Bough said the plaintiffs—hair salons, bars and restaurants—”have plausibly alleged that Covid-19 particles attached to and damaged their property, which made their premises unsafe and unusable.”

Now, as the case proceeds, the plaintiffs must document the nature and extent of Covid-19 on the relevant property to get their claims paid, the judge said.

“The initial decisions indicate, on the whole, these cases can ultimately be resolved consistent with insurers’ underwriting intent as reflected in the language of the policies,” said Bryce Friedman, a lawyer with Simpson Thacher & Bartlett, who represents insurers.

Plaintiffs beg to differ.

Mr. Reiser, the lawyer in the California case, is hoping for a quick response from the appellate court.

“Thousands of entrepreneurs and small-business owners are facing permanent closure or bankruptcy based on dubious coverage denials,” he said.