COVID-19 Coverage Litigation Escalates | Insurance and Reinsurance Disputes Blog

As the COVID-19 pandemic brings about more shutdown orders, non-essential businesses that have been shut because of government orders are fighting to obtain insurance coverage.  The first four cases brought were declaratory judgment actions seeing orders that their policies covered the suspension of their businesses.  The latest case, however, goes a two steps further and includes breach of contract and statutory bad faith claims.

In Big Onion Tavern Group , LLC v. Society Insurance, Inc., No. 1:20-cv-02005 (N.D. Ill. Mar. 27, 2020), a group of restaurant and theater owners in Chicago  and its surrounding suburbs sued their insurer after their request for business interruption coverage was rejected following Illinois’ Governor’s COVID-19 shutdown order.  The complaint, which is linked above, outlines the various governmental orders that required their businesses to close.

The allegations include a claim that within hours of receiving the claims for coverage, the insurer issued blanket denials without first conducting any meaningful investigation, “let alone a ‘reasonable investigation based on all available information’ as required under Illinois law.”  The complaint references a memorandum allegedly sent by the insurer to its “agency partners” (attached to the complaint as an exhibit) about the COVID-19 governmental closure orders and that it would likely not provide coverage for losses due to a COVID-19 shutdown.

The complaint also includes as an exhibit the denial letter, which allegedly provides some reasoning for the insurance company’s coverage position.   According to the complaint, the letter states that the losses based on actual or alleged presence of the coronavirus, which led to the governmental orders, does not constitute direct physical loss.  The complaint alleges that the insurance company’s “conclusory statement” is contrary to Illinois law, which has “consistently held that the presence of a dangerous substance in a property constitutes ‘physical loss or damage.’”

The complaint further alleges that the policies sold to these plaintiffs did not include an exclusion for virus and, that if the insurer wanted to exclude pandemic, it could have easily done so.  The complaint contends that the insurance company’s “wholesale, cursory coverage denials are arbitrary and unreasonable, and inconsistent with the facts and the plain language of the policies it issued.”

The complaint sets forth the provisions of the policies (an example included as an exhibit), including that they were all-risk policies, with no exclusion for virus, and coverage grants for actual loss of business income due to necessary suspension of the insureds’ operations caused by a direct physical loss of or damage to covered property.  Suspension, according to the complaint, means partial slowdown or complete cessation of business activities or that part or all of the insured premises is rendered untenantable “if coverage for Business income applies.”  All the coverage grants require physical loss or damage.  Even the civil authority provision provides that coverage is triggered if a non-excluded cause results in damage to property.  The complaint alleges that the civil authority provision is intended to cover losses resulting from government actions “taken in response to dangerous physical conditions.”

The complaint contains three counts: (1) declaratory judgment; (2) breach of contract; and (3) bad faith denial of insurance.  This is a departure from the earlier cases that only sought a declaratory judgment.  More to come; no doubt.

 

 

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