Businesses Sue Major Insurance Companies for Denial of COVID-19 Claims

Businesses Sue Major Insurance Companies for Denial of COVID-19 Claims

Business interruption insurance is a standard expense for most companies. You pay a premium to be protected against revenue losses caused by a closure due to a “covered peril.” Companies across the country have been forcibly shut down due to the COVID-19 pandemic, but as they’ve filed claims with their insurers, they been told a pandemic is not a “covered peril.” David Sampson, president and CEO of the American Property Casualty Insurance Association, told The Chicago Tribune, “Pandemic outbreaks are uninsured because they are uninsurable.”  What exactly is that supposed to mean?

Some insurers assert that a pandemic presents an “uninsurable risk” because the potential loss to the insurer is unknowable or unacceptable. Insurance policies have traditionally had broad exclusions for “acts of God,” defined as naturally occurring events that cannot be avoided through caution and preventative measures. 

Others argue that business interruption is an addendum to other coverage, such as fire and flood insurance, and comes into play when physical damage to a business makes it impossible to operate. Neither argument is terribly persuasive.

Given recent history, including the SARS and MERS pandemics, insurers can hardly claim that a pandemic is an unknowable risk. Likewise, economic losses related to those pandemics have been quantified, so the risk is knowable down to the last dime. Policyholders argue that insurers who do not wish to cover pandemics shouldn’t be issuing business interruption insurance. Some business owners cite the absence of a specific exclusion in the policy and are crying bad faith. It’s become apparent that insurers are resisting payment as they angle for a bailout from Congress.  

But, as “small businesses are losing between $255 billion and $431 billion of income monthly as a result of the pandemic,” should an industry that “maintains an $800 billion surplus to cover all … insurance claims” be let off the hook because of vague language or fine print trickery? Businesses large and small don’t think so, and they are lining up to sue their insurers for the coverage they feel they are owed.

Businesses that have filed against insurance companies include:

  • Executive Chef Thomas Keller —The San Francisco restauranteur behind the famous Michelin Three-Star restaurant in Yountville, The French Laundry, has sued Hartford Fire Insurance Co.
  • Sandy Point Dental — The Lake Forest, IL dental office filed suit against Cincinnati Insurance after a state order deemed 95 percent of its non-emergency dental work to be nonessential.
  • Seven Chicago hospitality and entertainment groups — Baylis’ Big Onion Tavern Group, Headquarters Beercade in River North, Homeslice Pizza in Lincoln Park, Harper Theater in Hyde Park, The Whale in Logan Square, Machine 1846 in Wicker Park and McBride’s Pub and Grille in Joliet joined one suit filed in federal court against Society Insurance, alleging their business interruption policies do not contain a virus exclusion. Chicago’s Billy Goat Tavern and Maillard Tavern have also sued Society separately.
  • Houston Rockets of the NBA — Clutch City Sports & Entertainment LP, which owns the Toyota Center, and Rocket Ball Ltd., which owns the Rockets NBA franchise filed suit in Rhode Island state court accusing Affiliated FM Insurance Co. of bad faith in denying COVID-19 closure coverage under the team's $412 million policy.
  • In-N-Out Burger — National Restaurant News reports the famed California burger chain with more than 350 locations sued Zurich American Insurance at the end of May over denial of COVID-19 claim, saying the policy had “no exclusion for viruses or infectious diseases.”
  • Oklahoma Indian Casinos — In separate lawsuits, the Chickasaw and Choctaw nations brought action against several insurance companies for financial losses at casinos caused by the COVID-19 pandemic even before those companies issued a formal denial of a claim. The nations want a judicial ruling stating their business interruption insurance policies cover their losses. Defendant insurers include Lexington Insurance Co., Homeland Insurance Co. of NY (One Beacon), Hallmark Specialty Insurance Co., Endurance Worldwide Insurance LTD T/as Sompo International, Arch Specialty Insurance Co., Evanston Insurance Co., Allied World National Assurance Co., Liberty Mutual Fire Insurance Co., XL Insurance America Inc., and several Underwriters at Lloyd's syndicates.
  • The Ivy Room — In June, the famous East Bay music venue filed suit against Mercury Insurance, which had denied business interruption insurance coverage because “because there was no physical damage which either obstructed access to Ivy Room or rendered the building uninhabitable,” according to
  • Movie theatres — Tony Fox, owner of two Chicago area cinemas, The New 400 Theater in Rogers Park and Harper Theater in Hyde Park, told The Chicago Tribune that Society Insurance denied his claim within a day of submitting it. According to the Tribune, “His movie theaters, each of which has four screens and typically brings in $3,300 to $3,500 a day, have been closed for a month under the shutdown, with 18 employees laid off.”

The list could go on and on, with restaurants, hotels, retailers, sports and entertainment venues dominating. As businesses suffer, Tony Fox speaks for many of the proprietors, “They are hoping for a government bailout, and I’m hoping they go to jail. … How could they take our fees for 10 years and then not payout?” 

How is your business faring? If your insurer has refused to honor the terms of your business interruption insurance, you could be entitled to coverage and insurance bad faith damages. Delaying action could severely hamper your business and even cause your company to go under. 

With so much to lose, it's time to contact an experienced insurance bad faith attorney at our firm for a case evaluation. We are ready to fight for the coverage you’ve paid for, so your business can make it through this crisis.


Steve Hochfelsen

Steve Hochfelsen is an Orange County, California business litigation lawyer & author.

To connect with Steve: 714-907-0697 or [hidden email] or online
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