Scarce profits with small businesses in insurance litigation hold hope for payouts

Chef Matthew Kelly is one of the few restaurateurs who has fought and won over property insurers over pandemic business constraints.

His businesses are part of a group of restaurants facing a North Carolina state court this fall. The insurer appealed against the decision and found that the plaintiffs were entitled to payouts during business interruptions.

“I am excited that we have come this far, but the excitement and the victory does not mean relief before the work is completed,” he said. Kelly said.

Cases like Mr. Kelly keeps alive the hope that some small businesses can receive insurance money to help them return from the state-ordered closures.

In hundreds of lawsuits across the country, small businesses have sued their property insurance companies for refusing to pay out claims related to the pandemic. Many insurers believe that their policies contain a clear language, except for virus-related claims, while most claims also do not meet the criteria of their policies.

Many courts have supported the insurers in their denial of payouts, but businesses are making progress. Of the approximately 100 rulings in cases that businesses file against insurers, about three-quarters were in favor of insurers, according to a Covid-19 lawsuit lawsuit filed at the University of Pennsylvania’s Carey Law School.

Mr. Kelly, 44, was planning to open a fifth restaurant while the coronavirus struck. Instead, he suspended the plans and fired about 100 employees. “It’s depressing,” he said in his still-open Mateo Bar de Tapas in Durham. He pulls off a cap to give baldness. “My hair is falling out” from the tension, he said.

Like many restaurant owners, Mr. Kelly said he incurred a huge amount of debt – about $ 1.3 million in his case – to keep eateries open. Two of its four restaurants are currently closed.

One of the challenges for policyholders, insuring industry outages usually requires ‘direct physical loss or damage’ to cause the outage. The insurers usually interpret this as tangible property damage that requires repairs or rebuilding.

Guests’ temperature is checked at Mateo Bar de Tapas in Durham, NC before sitting down.

Business interruption coverage is a subset of property insurance, and with a few exceptions, insurers say they have not collected premiums for virus-related claims. Instead, most have included some sort of virus-specific exclusion since the SARS scare in the early 2000s.

The ruling in North Carolina points to the type of complaints that have the best chance of getting defense in the industry, lawyers say. The policy in the case, issued by units of Cincinnati Financial Corp.

and covers a total of 16 restaurants, does not contain a specific virus exclusion.

Mr. Kelly’s lawyers have focused on the absence of definitions in the policy for terms such as ‘physical loss’. They also claim that previous rulings in North Carolina do not set requirements for structural damage, as Cincinnati Financial and most other insurers argue.

In a trial in September, Mr. Kelly masked and socially distanced himself from the other restaurateurs, as Judge Orlando Hudson said he would rule in favor of the policyholders. In his subsequent written opinion, the judge said that the ordinary meaning of ‘direct physical loss’ includes the inability to use or possess anything in the real, material or physical world. ‘


Should the interruption insurance cover losses from the pandemic? Join the conversation below.

Cincinnati Financial argues that the policy does not cover economic damage in the absence of a direct bodily loss of property, and he said such loss requires physical harm.

“We still believe that business interruptions under our property policy are not applicable in this case because there was no structural change to the property,” said Cincinnati Financial spokeswoman Betsy Ertel. “The prevailing view by courts across the country was that an economic loss alone does not qualify as direct bodily property damage or property loss, which is the cause of coverage for business interruptions.”

Gagan Gupta, one of the plaintiffs’ lawyers, says the financial losses of the restaurants will be determined later and it could amount to $ 10 million in the 16 restaurants.

State, state and federal courts have taken the pace in recent weeks in ruling on more than 1,300 Covid-19 business interruption coverage disputed since March, according to the University of Pennsylvania law school database. On December 21 alone, at least four separate federal courts ruled. Three granted the insurer’s motions to dismiss, and the fourth denied such motion and allowed the policyholder’s case to proceed. Nearly 150 lawsuits have been voluntarily dismissed, said Tom Baker, a professor at Penn Law School.

The owner of Mateo Bar de Tapas had to make plans to open a fifth restaurant when the pandemic struck.

Some policyholders are achieving success by extending past rulings in which judges have concluded that things like veldfire smoke, gas fumes and carbon monoxide cause property damage with a view to industry disruptions, lawyers said.

“It would come down to experts saying it’s probably statistical that the virus was on the property,” said Robin Cohen, a chief at law firm McKool Smith.

In November, a judge in Clark County, Nev., Denied an insurer’s motion to dismiss a case in which Cohen’s client, JGB Vegas Retail Lessee LLC, claims that the coronavirus spreads through infected exhaled droplets. which causes damage to other objects. ”The insurer submitted a motion for reconsideration.

Adam Moskowitz, a Florida law attorney who represents numerous policyholders, said insurers “should not be comforted” by their initial success because some involved less experienced attorneys who started with poor cases early on.

Insurers’ attorneys acknowledge that in cases where there are unique circumstances, worse battles are experienced by law firms with deep insurance. But they remain confident that the early successes will continue.

“We will hear the legal disputes,” said Steven Badger of Zelle LLP, which represents insurers. “It will be resolved like any dispute over insurance coverage by trial or settlement.”

As many as four million small businesses could be lost in 2020, analysts say, as the pandemic takes its toll on local economies. WSJ visits Yuma, Ariz., Where small business owners say a further stimulus from Congress may be too little. Photo: Adam Younker for The Wall Street Journal

Write to Leslie Scism by [email protected]

Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8