Coronavirus Insurance Coverage Class Action Lawsuits Filed Over Denial of Business Interruption Claims

Several major insurers face class action lawsuits after improperly denying insurance coverage for business interruption losses amid the coronavirus outbreak and government orders that have shut down large parts of the U.S. economy.

At least six such coronavirus insurance coverage lawsuits have been reportedly filed nationwide in recent weeks, each raising similar allegations for breach of contract by insurance companies and their underwriters.

While insurance companies have attempted to deny business interruption claims based on clauses that exclude coverage for pandemics and viral outbreaks, the lawsuits point out that the business losses are not caused by the loss of customers who contracted the virus, but rather due to “civil authority” actions that have required businesses to shut down to prevent the spread of illness.

One such complaint (PDF) was filed in the U.S. District Court for the Southern District of New York on April 17, by GIO Pizzeria & Bar Hospitality and GIO Pizzeria Boca, LLC, which owns Nick’s New Haven Style Pizzeria & Bar restaurants in Florida. The lawsuit names underwriters at Lloyd’s of London as the defendants, for failing to pay claims, even though the business owner paid premiums for business interruption insurance.

In recent weeks, many businesses throughout the U.S. have experienced similar difficulties getting insurance companies to honor policies sold in recent years, claiming coverage for business interruptions caused by global pandemics are excluded. However, legal experts suggest many of these business interruption insurance denials may be improper.

Following the SARS outbreak in 2002 to 2003, many insurers placed exclusions in their coverage plans for damages resulting from pandemics, according to a recent report by The Washington Post.

The insurance companies are attempting to avoid covering large losses small business owners now face, even when the interruption is not a direct result of any virus or related illnesses, but may be the result of other factors, such as school closings, “stay home” orders or general economic fallout in recent weeks.

“Losses due to COVID-19 are a Covered Cause of Loss under the Underwriters’ policies with the Special Property Coverage Form,” GIO Pizzeria’s lawsuit states. “Losses caused by COVID-19 and the related orders issued by local, state, and federal authorities triggered the Business Income, Extra Expense, Civil Authority, and Sue and Labor provisions of the Underwriters policy.”

A similar complaint (PDF) was filed on the same day by Caribe Restaurant & NightClub Inc., doing business as La Luz Ultralounge in Bonita, California. The complaint was filed in the U.S. District Court for the Central District of California, and names Topa Insurance Company as a defendant.

Plaintiffs allege, in Topa’s case, there was not even an exclusion for viruses in the policy.

“Unlike many policies that provide Business Income coverage (also referred to as ‘business interruption’ coverage), Topa’s Special Property Coverage Form does not include, and is not subject to, any exclusion for losses caused by the spread of viruses or communicable diseases,” the lawsuit states. ”

Both lawsuits seek class action status to pursue damages on behalf of other businesses that have been improperly denied business interruption insurance coverage.