Federal Judge Rules that Three Missouri Restaurants Can Sue Insurers for COVID-19 Losses

ATTENTION BUSINESS OWNERS: we are investigating possible wrongful denials of business interruption insurance claims due to COVID-19. If you would like us to review your policy, feel free to send it along.

As we have written about previously, the COVID-19 pandemic and the numerous restrictions and shelter in place orders that have been implemented have spawned a number of lawsuits from business owners against insurance companies. These suits seek to determine coverage for business income losses that resulted from businesses being forced to shut down in compliance with government orders. A recent ruling from a federal judge in Kansas City could open the window for thousands of businesses whose insurers have denied their COVID-19-related claims.

Background of the COVID Coverage Disputes

Businesses holding all risk or business income interruption polices have submitted claims throughout the country to their insurers seeking coverage for business interruptions based on COVID-19-related closures. The claims generally seek recovery of lost business income and extra expenses incurred due to having to close their places of business as a result of the presence of the virus or government orders. The response from insurance companies has been almost universal: denial of the claims on the basis that the losses do not constitute a “direct physical loss or damage” at the covered property. Following the filing of hundreds of insurance coverage lawsuits, some plaintiffs are seeking consolidation of the federal lawsuits in multidistrict litigation. The Judicial Panel on Multidistrict Litigation heard an argument for consolidation in August and is expected to issue a decision in the coming weeks.

To date, most court decisions have sided with insurance companies. The courts in these cases have held that the risks posed by COVID-19 do not meet the direct physical loss or damage requirement for coverage under the insured’s respective policies. The recent opinion from U.S. District Court Judge Stephen Bough is definitely an outlier but gives new ammo for those businesses whose claims have not yet been decided or who have yet to file suit against their insurance companies.

The lawsuit was filed by a hair salon and three Kansas City area restaurants, which suffered losses of hundreds of thousands of dollars when they were forced to shut down their businesses for 11 weeks. In a recurring theme, the business owners turned to their “all risk” insurance policies believing that such policies would help cover their losses. Their insurer, the Cincinnati Insurance Company, however, disagreed and denied the claims.

The businesses filed suit and Cincinnati Insurance Company moved for dismissal arguing, as almost all insurers have, that the businesses could not meet the direct physical damage requirement for coverage. According to the insurance company, the policies provide coverage only for income losses tied to physical damage to property, not for economic loss caused by governmental or other efforts to protect the public from COVID-19. Judge Bough was unconvinced and denied the motion finding that the plaintiffs’ case was plausible enough to go forward.

The court found that the policies covered both direct “physical damage” and “physical loss,” neither of which were defined in the policies themselves. The Court also found that the insurance company’s arguments focused on a lack of physical damage but largely ignored the physical loss language, which provided a distinct basis for coverage.

After reviewing the dictionary definitions of the words direct, physical, and loss, the Court concluded that the businesses had plausibly argued that COVID-19 “is a physical substance” that “lives on and is active on inert physical surfaces” and is also “emitted into the air.” By alleging that the virus attached to their property, making it “unsafe and unusable,” the businesses plausibly alleged a “direct physical loss” to their premises.

The Court’s full opinion can be found online here.

We are assisting a number of businesses across a wide range of industries by reviewing their policies to see whether coverage is available for business interruption losses arising out of COVID-19. If you are a business owner who is considering filing a business interruption claim or has already filed a claim and been denied, please contact us for a free consultation.

Super Lawyers named Chicago and Elmhurst business litigation and insurance dispute attorneys Peter Lubin and Patrick Austermuehle a Super Lawyer and Rising Star respectively in the Categories of Class Action, Business Litigation, and Consumer Rights Litigation. Lubin Austermuehle’s Oak Brook and Chicago shareholder oppression lawyers have over thirty-five years of experience litigating complex commercial litigation, declaratory judgment, and bad faith disputes. We handle emergency business lawsuits involving injunctions, and TROS, covenants not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits in addition to disputes involving breaches of fiduciary duty. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. From offices near Naperville and Wheaton, we serve clients throughout Illinois and the Midwest.

If you’d like to discuss how the experienced Illinois insurance and breach of contract attorneys at Lubin Austermuehle can help, we would like to hear from you. To set up a consultation with one of our Chicago class action attorneys and Chicago business trial lawyers, please call us locally at 630-333-0333 or contact us online.

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