Sports Bar Files Insurance Lawsuit Over Failure To Cover Business Interruption Coverage for Coronavirus Losses

A Washington, D.C. sports bar has filed a lawsuit against its own insurance company, alleging that it has wrongfully refused to cover business interruption losses caused by the coronavirus outbreak.

The complaint (PDF) was filed in the Superior Court of the District of Columbia on April 8, pursuing coverage for losses experienced by Proper 21 from Seneca Insurance Company. The District of Columbia was also named as a defendant, against which no monetary relief is sought.

The plaintiffs, who also own Manhattan Proper and Proper West in New York, say  Seneca should be held responsible for paying out business interruption insurance coverage for losses linked to the outbreak, not because of the virus itself, but because of the dine-in bans put in place to respond to it.

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.

Seneca and other insurance companies are attempting to avoid covering large losses for certain small business owners, even when the interruption is not a direct result of the 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.

In this recently filed business interruption lawsuit, plaintiffs argue that the ban falls under the category of “Civil Authority Coverage,” instead of the pandemic exclusion. The lawsuit claims the losses stem from the coronavirus response, not damage from the virus pandemic itself, which would be more applicable if Proper 21 and similar businesses closed due to illnesses among staff, the complaint argues.

The lawsuit notes that the policy is supposed to provide coverage for necessary suspension of operations during things like restoration, or when civil authority forces a business to close.

“Civil Authority Coverage for Business Income will begin 72 hours after the time of the first action of civil authority that prohibits access to the described premises and will apply for a period of up to four consecutive weeks from the date on which such coverage began,” the policy states, according to the lawsuit. “Civil Authority Coverage for Extra Expense will begin immediately after the time of the first action of civil authority that prohibits access to the described premises and will end: (1) Four consecutive weeks after the date of that action; or (2) When your Civil Authority Coverage for Business Income ends; whichever is later.”

The lawsuit seeks declaratory relieve from Seneca and D.C., though no monetary relief is sought from D.C. It also presents claims of breach of contract against Seneca.

The complaint is one of the first of a large number of small business insurance lawsuits expected to be filed in the wake of the coronavirus, as several insurance companies attempt to deny coverage for policies issued in recent years.

Lawyers are expected to challenge the business interruption claim denials based on the specific language of each policy, and how courts in different jurisdictions may interpret property damage and “direct physical loss” terminology in those policies, as they relate to the pandemic.

In the meantime, lawmakers in a number of states are trying to pressure insurance companies to voluntarily honor the coverage after collecting premiums from small business owners for years, indicating that legislation may clarify the issue and require insurers doing business in the state to cover pandemic business interruption losses.