Insurer wins COVID-19 dispute with barbershops

Corrected: An earlier version of the story misstated the ownership of the insurer involved in the case.

A pair of San Diego barbershops can’t recover income lost due to coronavirus-related shutdowns from their insurer, a federal court ruled on Friday.

The ruling, which cites several other recent rulings on the issue of whether government-ordered shutdowns constitute loss or damage to property under business interruption coverage, is another victory for insurers in legal fights with commercial policyholders playing out in courts across the United States.

In the ruling in Pappy’s Barber Shops Inc. et al. v. Farmers Group Inc. et al., which was heard in U.S. District Court for the Southern District of California, the judge ruled the barbershops were not covered under the lost income, extra expense or civil authority clauses in their policy with the insurer.

According to the ruling, the barbershops had argued that they had suffered a loss under the terms of their policy that covers lost income, which states that any suspension in business must be caused by “direct physical loss of or damage to property” for a claim to be paid.

The policy, which was issued by Farmers unit Truck Insurance Exchange, included a virus exclusion but the barbershops said it did not apply because their loss was caused by government-ordered precautionary measures to stem the spread of COVID-19, not because the coronavirus was found on the premises.

In ruling for the insurer, U.S. District Judge Cathy Ann Bencivengo cited several rulings from a growing list of insurer wins on the issue of coronavirus business interruption coverage, including another federal court ruling in California, which was in favor of Travelers Cos. Inc.

“Plaintiffs are not the first policyholders to argue in court that government orders forcing their businesses to stop operating as a result of the COVID-19 pandemic trigger insurance under provisions similar or identical to the ones in the Policy here. Most courts have rejected these claims, finding that the government orders did not constitute direct physical loss or damage to property,” Judge Bencivengo said in ruling for Farmers.

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