Insurance Lost Business Claims
Insurance Lost Business Claims
COVID-19 led to an unprecedented closure of businesses. Many businesses shuttered under government COVID-19 Executive Orders filed claims with their insurers for the business interruption. While some businesses had business interruption insurance and made claims under those policies, others did not have specific business interruption insurance, and instead filed claims under commercial insurance policy coverages. But, insurers have almost uniformly rejected such claims under either type of insurance coverage, leading to a plethora of insurance bad faith lawsuits across the country. Even businesses that sought broad coverage insurance policies, asking for “the best available policy with complete coverage for any catastrophic event,” received claim denial notices from the insurer.
While insurance claims and interpretation of insurance policies law is very well developed, the issue of when and under what conditions may losses caused by the COVID-19 pandemic and civil authority closure orders be covered is a novel area. How these cases and the resulting lawsuits are being handled is a hot topic for businesses of every kind.
Importantly, businesses whose claims were denied by the insurance carriers are also looking to their insurance broker through which they purchased the insurance, making claims against the broker, such as a request for the court to rule whether policy coverage exists, as well as damages from breach of the covenant of good faith and fair dealing, bad faith denial of an insurance claim, fraudulent misrepresentation, constructive fraud, unjust enrichment, violation of Unfair Competition Law (UCL), attorneys’ fees and costs and injunctive relief under the UCL to prevent insurers and brokers from denying future claims based on the same arguments. In support of the constructive fraud claim, businesses have alleged that the brokers were fiduciaries or quasi-fiduciaries of the business and did not act or consider the interests of the business. The allegations against the broker also include that when the broker sold the business an insurance policy, the broker made or approved materially false and misleading statements to the business and thereafter, the broker joined in the denial of the business’s insurance claim. At the very least, the businesses say, the broker did not warn it that losses related to a virus, pandemic or government orders would not be covered. The claims against the brokers are in turn implicating the brokers’ errors and omissions carriers, which are in turn questioning whether the broker had a duty to inform the business of the existence of coverage for such risks.
Three notable cases are pending: Sean Boutros, M.D., P.A. v. Sentinel Insurance Co. Ltd., John’s Grill v. The Hartford Financial Services Group, Inc., and Ybarra Investments, Inc. v. Scottsdale Insurance Company. In all three cases, insureds sought business interruption coverage for damages incurred when the businesses were forced to shut down due to COVID-19, and all three sued the insurer and the broker through which they purchased the insurance. The outcome of these cases will likely dictate how other lawsuits will be decided.
Insurance policies consist of policies, endorsements, and exclusions, all which together constitute the insurance contract. There is a question of whether virus exclusions are enforceable, whether the parties expected coverage for COVID, and other no-covered damages arguments. There is also a question of whether governmental legislatures or regulators will step in to eliminate such exclusions or dictate policy interpretation aimed at coverage. Then an additional question is how business interruption damages should be calculated. Given the limited access to courts, which have been shuttered too, there is an overarching question of how to get access to the court in order to advance denied claims lawsuits.
But policies typically include a requirement to make a timely claim, which if not done, results in a clean basis to deny a claim. So, if you wish to do so and need assistance to timely file a claim for lost business, please feel free to contact us. And for more information feel free to contact Dawn: dcoulson@eppscoulson.com.
EPPS & COULSON, LLP
Attorneys admitted to practice in
California, New York, Colorado, Texas, Oregon and Hawaii
Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney. While intended as information and educational, it is considered advertising under applicable various laws of some states, and as such, EC encourages you to call us to discuss these matters as they apply to you or your business.