Wave of policyholders sue for COVID-19 coverage

Policyholders including a dive shop, a dental practice, restaurants and a French heavy-metal festival continued to seek coronavirus-related coverage from their insurers over the past week.

In a series of lawsuits filed in state and federal courts, U.S. commercial policyholders sought business interruption coverage for revenue lost due to government-enforced business closures, and in France Hellfest publicly rebuked its insurer for refusing to pay expenses related to the postponement of the 2020 edition of the music festival.

The latest suits follow previous efforts by policyholders to secure declaratory rulings in favor of coverage that began last month.

The suits allege the organizations were forced to close or limit their operations by government authorities as part of state and federal efforts to stem the spread of COVID-19. Insurer groups have generally asserted that business interruption claims should only be paid when there is direct physical damage that leads to the loss of revenue and that many policies include exclusions for losses related to communicable diseases.

Most recently, a Washington sports bar filed suit on Wednesday in a District of Columbia court arguing that its premises had become unusable since the pandemic and that constitutes a direct physical loss under the terms of its policy. In the suit, Proper Ventures LLC v. Seneca Insurance Co. Inc., the policyholder, which operate the Proper Twenty-One sports bar, said its policy provided coverage for civil authority closures and $420,000 in limits, but the Crum & Forster unit had denied its claim on the grounds that there was no physical loss, impaired access to the business was not caused by property damage, and the policy contained an exclusion for losses due to a virus or bacteria.

On Tuesday, a company that runs the Ollie Irene restaurant in Mountain Brook, Alabama, sued its insurer for lost revenue after it was reduced to offering curbside pick-up service, following various government orders affecting businesses in the state. In the suit filed in state court in Birmingham, Alabama, Sharecropper LLC. v. Farmers Insurance Exchange, the restaurant argues that government orders impaired access to the restaurant, which constitutes a direct physical loss. Its insurer, a unit of Farmers Insurance Group of Cos., denied the claim, saying there was no direct physical loss and coverage for virus-related losses is excluded under the policy, court papers say.

On Monday, a dental office in Lake Zurich, Illinois, stated in a federal lawsuit filed in Chicago against its insurer that it had been forced to close after state authorities deemed elective dental work, which constituted 95% of its business, nonessential. In Sandy Point Dental P.C. v. The Cincinnati Insurance Co., the policyholder argues that under Illinois law the presence of a dangerous substance constitutes a physical loss and the insurer was wrong to deny coverage under the civil authority clause in the policy for lack of a direct physical loss. In addition, the policy does include an exclusion for bacteria but not for viruses, Sandy Point Dental says in the suit.

Also on Monday, in the suit Mace Marine Inc. v. Tokio Marine Specialty Insurance Co., filed in state court in Tavernier, Florida, the policyholder, which operates Conch Republic Divers in the Florida Keys, argues that mass contamination and closure due to civil order constitute physical damage. In addition, the dive shop says losses related to pandemics are not excluded under the policy.

Last Friday, a nonprofit theater company in Indianapolis sued its insurer in state court for business interruption coverage. In the suit, Indiana Repertory Theatre Inc. v. The Cincinnati Casualty Co., the theater argues that the forced loss of use of its facilities “fits easily within a ‘direct physical loss,’” court papers say. The policy does not include a virus exclusion, the suit states.

Cincinnati Insurance and Farmers declined to comment on the suits. None of the other insurers sued by the policyholders responded to requests for comment.

Also this week, Hellfest announced that the 15th anniversary edition of its rock festival, which was due to be held June 18-20 in Clisson, France, would be postponed and that its insurer had rejected its cancelation claim. According to a statement on its website, Hellfest Productions said its policy with Levallois-Perret, France-based Albingia SA provided pandemic coverage. According to the statement, which contained an expletive rebuking the insurer, Albingia said the COVID-19 pandemic was not covered.

Albingia could not immediately be reached for comment.

The latest coverage disputes follow several other suits filed over the past month by business affected by the pandemic, including Oceana Grill in New Orleans, a Native American tribe that operated casinos in Oklahoma, the French Laundry restaurant in Napa Valley, a group of Chicago restaurants and movie theaters, Scratch Bar & Kitchen in Los Angeles, the Billy Goat Tavern in Chicago, Prime Time Sports Grill in Tampa, Florida, and SCGM, a Texas dine-in theater chain, whose policy includes an endorsement for pandemic coverage.

On Friday, President Trump weighed in on the issue suggesting that insurers should pay business interruption losses, in some cases.

More insurance and risk management news on the coronavirus crisis here.