published on May 26, 2020 - 1:20 PM
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The fight over who should foot the bill for lost business because of shelter-in-place orders is making its way through the courts.

Increasingly, business owners are finding allies in states in the fight to have business losses incurred by shelter-in-place orders and COVID-19 be covered by insurance policies. The breadth of claims being filed has the potential to bankrupt even the most capitalized insurance agencies.

And even before courts make their rulings in the numerous disputes brought before judges regarding whether shelter-in-place orders qualify for interruption insurance, experts suggest businesses who think they have a claim file sooner rather than later.

Attorney Theodore “Tad” Hoppe at the Hoppe Law Group in Fresno encourages businesses that feel they have a claim to not wait to find out if other businesses are getting money. He recently released a memo on business interruption insurance, breaking down some of the barriers to getting claims.

Businesses need to first establish a loss has occurred. Most policies say that losses must be physical, and so at first glance, many claims have been dismissed.

One insurer in New York went so far as to pen a letter to policyholders discouraging them from even filing a claim. Slate Hill Daycare Center Inc. took Utica National Insurance Group to court over the ruling, claiming that COVID-19 indeed caused physical damage, according to Law360.

Viruses exist on surfaces and because of this, they can’t have customers. In the case of the daycare center — children.

“We fully expect creativity to come out of this,” said Hoppe.

One industry Hoppe feels might have standing is meat-processing plants, where contaminated equipment may have to be shuttered.

Many insurance policies have exceptions written into them, naming damages caused by viruses or bacteria to not be included. Additionally, many policies exclude closures caused by government action.

During the wildfires in Northern California, state governments shut down businesses because of the threat to the power grid. One nursery lost $500,000 in plants, according to Hoppe. But a claim was denied because it was the government that told the business to close.

States such as New York, Pennsylvania, New Jersey, Ohio and others have proposed bills telling insurance companies to approve claims whether specific exclusions had been written in or not.

A class-action lawsuit has been filed in federal court on behalf of California small businesses where the plaintiff — a San Francisco-based children’s clothing boutique — were categorically denied interruption claims. The suit against Travelers Casualty Insurance Co. by Mudpie Inc. says the denial acts on “bad faith” and breaches the contract made by businesses who got the insurance for reasons like shutdowns.

“Global pandemic risks are uninsurable by private insurers, and only the federal government has the financial resources to cover them,” said Loretta Worters from the New York-based Insurance Information Institute via an email.

Approving retroactive payouts could cost the insurance industry at least $250 billion a month, preventing them from paying out claims related to wildfires, tornadoes and hurricanes. Worters said that across the entire insurance industry, they only have $770 billion in surplus.

“In these challenging times, it is important to look forward toward government-backed solutions to help businesses withstand and eventually reopen. COVID-19 is now impacting every state in the Union at the same time, and only the government has the financial wherewithal to provide assistance,” said Worters.

The California Insurance Commissioner in April called on insurers to report on the extent to which claims are being filed. Data is still being compiled, according to a spokesperson with the agency. The National Association of Insurance Commissioners has requested monthly data beginning in June.

Some of the bills proposed by states promise that payouts will be reimbursed, said Susan Thompson, a partner with Hemming Morse Forensic & Financial Consultants in Fresno. Thompson has worked on behalf of both insurers and the insured to investigate interruption insurance claims.

Thompson says individual claims ought to be looked at instead of being denied outright.

Even policies filed with the same insurers may be different among different businesses, she says.

“You have to look at each one — and the exclusions and the way its written — to know whether or not there’s any room for interpretation that there’s coverage or not,” Thompson said. “I think there’s going to be a lot of lawsuits regarding coverage.”

For business owners, Thompson says the most important thing is to document and track expenses.

Having to work from home may incur expenses that can be covered, as could loss of foot traffic outside a storefront or contracts for work.

“You need to keep track of all those contracts and what that revenue may have meant to you,” said Thompson.

The fight between insurers and claimants is just beginning and case law has yet to be established, said Hoppe.

In his view, there will be rulings in trial courts where sympathetic judges may rule in favor of business owners. Exceptions may be ruled as vague or ambiguous, but a “carte blanche” approval of claims would crater insurance companies, he said.

“The industry is ready and prepared for the onslaught of litigation that will come out,” he said.

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