In the article titled “Insurers Win Most – But Not All – Covid Business-Loss Lawsuits” (Nov. 27, 2020), Bloomberg reported on insurance companies’ success in defending denials of COVID-19-related business interruption insurance claims in courts across the country. The case cited as a notable exception was Urogynecology Specialist of Florida LLC v. Sentinel Insurance CO. Ltd., in which Imran Malik represented the plaintiff in federal district court in Florida and won against the insurance company. (Read more about this case here.)
What makes this case so notable is that the judge recognized that virus exclusion provisions in business insurance policies do not necessarily exclude losses due to COVID-19. Malik argued that the exclusion language in the policy was ambiguous and that any ambiguity should be interpreted as being in favor of coverage. The judge agreed that language saying insurance companies won’t pay for losses or damage caused by “the presence, growth, proliferation, spread, or any activity of ‘fungi wet rot, dry rot, bacteria or virus’” do not logically and unambiguously apply to COVID-19-related losses.
In the Bloomberg article, Malik makes the point that “People like [his] client paid for coverage for these kinds of losses and it isn’t right that insurers don’t want to pay.” Certainly, business owners facing catastrophic losses due to the pandemic agree with this view, but insurance providers and many judges who have heard their arguments for denying business interruption claims do not.
To defend their denials and get lawsuits against them dismissed, insurance companies are basically using two different tactics: claiming that the virus exclusion clause in policies excludes COVID-19-related losses and/or claiming that losses due to the pandemic do not qualify as physical damage or the kind of loss required for a business-interruption payout, as from a tornado or flood, for example.
The first defense has worked well for insurers in many cases, but the argument Malik successfully made in Urogynecology Specialist of Florida LLC v. Sentinel Insurance CO. Ltd., has also had some success. Some judges are recognizing the ambiguity in virus exclusion clauses and the fact that there are no precedents for relating the effects of COVID-19 on a business to virus exclusions in business insurance policies.
In regard to insurance companies’ other line of defense, many state and federal courts have decided in their favor, accepting the assertion that businesses filing these lawsuits have not suffered a direct physical loss or damage. Some judges, are, however, recognizing the ambiguity in policies’ language surrounding “loss” and “damage.” To qualify as a loss, does physical damage necessarily have to occur? Doesn’t “direct physical loss” occur when a building is contaminated, for example, and a business has to close until the situation can be remedied? If business owners are deprived of the normal use of their property, hasn’t the business suffered a direct physical loss?
While there are presently more than 1,500 cases pending across the U.S., lawsuits over COVID-19 coverage for businesses are still new territory for the courts. So far, most lawsuits have been dismissed, but there are many more cases that have not yet been decided.
Fortunately, some hopeful signs for business insurance policyholders are developing. Recent decisions, such as the one Malik won in Urogynecology Specialist of Florida LLC v. Sentinel Insurance CO. Ltd. provide an opening for others who are seeking fair payment for their COVID-19-related losses. As case law in this area evolves, more weaknesses in insurers’ legal defenses could emerge.
Business owners pay high premiums for insurance coverage, and they deserve to get paid for their losses. The business interruption insurance claim attorneys at Malik Law are committed to fighting and winning for those who have wrongly been denied coverage for their business interruption losses due to COVID-19.