Travelers Cos. has gone to federal court in California seeking a declaratory judgment that it is not obligated to pay any business income losses of a law firm it has insured under two business owner policies.
Its law firm insured, Geragos & Geragos (G&G), with offices in Los Angeles and New York, sued Travelers on April 9 in California Superior Court in Los Angeles, seeking its own declaratory judgment that its policies do provide coverage under their civil authority sections for alleged business income losses suffered due to the closing of its offices, commercial building and the courts by government orders.
Travelers countered with its filing in U.S. District Court for the Central District of California in Los Angeles on April 20. “While Travelers is taking many steps to support its customers during this challenging time, G&G did not purchase insurance for the losses that G&G now claims,” Travelers says in its filing.
G&G is seeking an order that the civil actions in March by the Los Angeles mayor and California governor that closed many businesses constitute a prohibition of access to its premises. The firm argues that this fulfills the policy’s physical damage condition because the civil orders were based in part on the “dire risks of exposure with the contraction of COVID-19 and evidence of physical damage to property.”
The G&G position further rests on argument that “the deadly virus physically infects and stays on surfaces of objects or materials” and the scientific community, including the World Health Organization, “has recognized that the Coronavirus is a cause of real physical loss and damage.”
G&G is also seeking a declaratory order that civil authority section of the policy does not include an exclusion for a viral pandemic and actually extends coverage for loss or damage due to physical loss and damage, including by virus.
In its bid for declaratory judgment, Travelers argues it is not obligated to pay business income losses due to the coronavirus because its policies, even without reference to their exclusions, require “direct physical loss or damage” to property, but that the presence or suspected presence of a virus does not constitute the requisite “direct physical loss or damage” for a business income claim, including one resting on civil authority.
The presence of a virus on a surface would not cause physical damage to that surface, the insurer maintains.
What’s more, Travelers said its policies specifically exclude losses resulting from a virus or bacteria. “We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease,” the policy states. Travelers says this exclusion applies to “forms or endorsements that cover business income, extra expense, rental value or action of civil authority.”
This legal dispute is one of a growing number challenging insurers’ denials of business interruption claims related to the stay-at-home and business shutdown orders issued to help stop the spread of the coronavirus.
According to insurance defense attorney Jeffrey Wank with the Florida firm Kelley Kronenberg, who is not associated with the Geragos suits, said whether coverage is available will depend on the specifics in the language of the policy.
“When somebody files an insurance claim for business interruption, the first thing that the insurance company is going to look at it is was there actual physical damage to the property which necessitated the business to shut down,” he told Insurance Journal. “In order to trigger a business interruption coverage, there needs to be some actual physical loss to the property. So, the debate and the conversation that’s being had right now in our world, in the insurance industry is, is COVID-19 actual physical damage to the property?”\
Wank adds that even if there is actual physical damage, many policies exclude viruses, pandemics and bacteria.
“If there’s a finding from the courts that COVID-19 causes actual physical damage to property, then a lot of these policies and insurance would lend itself to providing coverage for these losses, subject to any exclusions,” he said. “But I just don’t see it … if you open up the coverage for one of these, you’re basically covering billions of dollars of losses.”
While Geragos claims that the virus causes physical damage, he has not sought a determination at this stage of whether the coronavirus is physically in his insured premises; nor does he seek any damages.
Geragos blasted the legal move by Travelers.
“Travelers Insurance, after cashing our premium checks for years, decided yesterday that instead of paying our Business Interruption claim that they would hire a large law firm to sue us in federal court instead,” the law firm CEO emailed Insurance Journal. “Apparently, their way of adapting to a pandemic is filing lawsuits against their own insured.”
G&G has also filed lawsuits on behalf of several clients against Los Angeles Mayor Eric Garcetti over his stay-at-home order.
The suits are Travelers Casualty Insurance Co. of America v. Geragos & Geragos, and Mark J. Geragos v. The Travelers Indemnity Company of Connecticut. Both were filed in U.S. District Court for the Central District of California in Los Angeles.
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