Insurance Class Action Lawsuits Filed Over Failure To Cover COVID-19 Income Losses

An increasing number of lawsuits are being filed against insurance companies by business owners nationwide, as carriers continue to deny claims for income lost during the on-going COVID-19 pandemic.

One such complaint (PDF) was filed last week in the U.S. District Court for the Northern District of Illinois by Vegas Image, which describes itself as a distributor of bulk casino and gambling themed chocolates, gift boxes and plush toys. The company claims that it’s insurer, Valley Forge Insurance Company, has failed to meet its obligation to cover business income losses suffered in recent months as much of the Las Vegas has shutdown.

According to the lawsuit, the Las Vegas-based, family-owned company purchased a policy from Valley Forge Insurance Company (VFIC) to provide business income coverage for losses “due to the necessary suspension of operations following loss to property.”

While the insurer has maintained that it will not cover losses caused by viruses, the lawsuit, and many like it, claims such causes only apply if there is loss due to an employee or customer illness on the property. However, in the current pandemic, Vegas Image indicates that their business losses stem from government “stay-at-home” orders, which caused them to close temporarily. In addition, Vegas Image indicates that the policy sold by Valley Forge Insurance Company did not even contain a specific exclusion for viruses.

“The presence of COVID-19 caused direct physical loss of or damage to the covered property under Plaintiffs’ policy, and the policies of the other Class members, by denying use of and damaging the covered property, and by causing a necessary suspension of operations during a period of restoration,” the lawsuit states. “The Closure Orders, including the issuance of the Nevada Closure Order, prohibited access to Plaintiffs’ and the other Class members’ Covered Property, due to a Covered Cause of Loss.”

At least 140 similar insurance coverage lawsuits have been filed against various companies nationwide in recent weeks.

With a growing number of complaints being filed in U.S. District Courts nationwide, several plaintiffs filed a motion to transfer on April 20, asking the U.S. Judicial Panel on Multidistrict Litigation to centralize all coronavirus insurance coverage lawsuits before one judge in the Eastern District of Pennsylvania.

It is estimated that thousands of similar complains will likely be filed in the coming months, as more small businesses are pushed to the brink only to find their insurance companies are denying payments on policies they purchased.

In complex product liability litigation, where a large number of claims are filed throughout the federal court system by individuals who suffered similar injuries as a result of the same or similar products or venues, it is common for the federal court system to centralize the litigation for pretrial proceedings. However, if settlements are not reached during discovery or following a series of early “bellwether” trials, each claim may later be remanded back to the U.S. District Court where it was originally filed to go before a jury.