A federal judge has agreed with an insurer that a group of barbershops in the San Antonio, Texas-area have no basis for claims seeking coverage under their commercial insurance policies for business interruption losses stemming from the COVID-19 pandemic.
The judge ruled that the plaintiffs suffered no physical damage as required under their policies.
Senior U.S. District Judge David Ezra of the U.S. District Court for the Western District of Texas, San Antonio Division, on Aug. 13 dismissed a lawsuit alleging State Farm Lloyds wrongly denied their claims for business interruption losses resulting from shutdowns ordered by state and local authorities attempting to control the coronavirus.
In siding with the insurer, Ezra wrote that while there is no doubt that the businesses suffered losses because of the mandated closures, “State Farm cannot be held liable to pay business interruption insurance on these claims as there was no direct physical loss, and even if there were direct physical loss, the Virus Exclusion applies to bar Plaintiffs’ claims.”
The suit was brought by Diesel Barbershop LLC; Wilderness Oaks Cutters LLC; Diesel Barbershop Bandera Oaks LLC; Diesel Barbershop Dominion LLC; Diesel Barbershop Alamo Ranch LLC; and Henley’s Gentlemen’s Grooming LLC.
The plaintiffs sued State Farm after the insurer refused to cover claims they filed in March. In denying the claims, State Farm argued that the claims are not covered because the policy specifically excludes loss caused by enforcement of ordinance or law, virus, and consequential losses.
Like other insurers that have faced similar business interruption claims, State Farm held that the plaintiffs had not sustained the physical damage from a covered cause of loss that would have triggered coverage for business interruption losses. In addition, the insurer said the virus exclusions contained in the policies also barred coverage from any losses caused by the pandemic.
In separate actions earlier this year, both the state and Bexar County, where the barbershops are located, had implemented closures of “non-essential” businesses for certain periods of time due to the pandemic.
The plaintiffs had maintained that the government-enforced closures were enough to trigger losses. They argued that the virus exclusion in their policies should not apply because the closure orders designed to protect public health and welfare were the cause of the direct physical loss to their properties, not the presence of COVID-19.
The barbershops accused the insurer of “breach of contract, noncompliance with the Texas Insurance Code, and breach of the duty of good faith and fair dealing.”
In his written opinion, however, Judge Ezra stated that the plaintiffs’ assertions of breach of contract and duty of good faith, and noncompliance with the insurance code “all fail.”
He recognized that though the coronavirus may not have been present in the plaintiffs’ properties, “it was the presence of COVID-19 in Bexar County” that primarily caused the government ordered business closures.
Hundreds of Lawsuits
Hundreds of lawsuits have been filed by businesses against their insurers due to denials of coverage for losses stemming from government ordered closures related to the pandemic.
The Texas State Farm Lloyds case is similar to previously filed suits in which insurers have prevailed.
In July, a Michigan trial judge dismissed a lawsuit against an insurer brought by a restaurant group after the insurance company denied the group’s claim for business interruption losses in the wake of government ordered closures brought on by the COVID-19 pandemic. In Gavrilides Management Company et al. vs. Michigan Insurance Co., Judge Joyce Draganchuk of Michigan’s 30th Circuit Court ruled on July 1 in the insurer’s favor that that physical alteration of the property was required to trigger coverage under the business interruption policy. In addition, the virus exclusion in the policy also barred coverage, the judge said.
Erie Insurance Exchange won a victory earlier this month when District of Columbia Superior Court Associate Judge Kelly Higashi granted the insurer a summary judgment that its policy was not triggered because a shutdown did not amount to a direct physical loss. This suit had been filed by the owner of several restaurants over business interruption losses after a shutdown ordered by D.C. Mayor Muriel Bowser.
It hasn’t been all wins for insurers, however.
An Aug. 12 ruling by a federal judge in Missouri allowed a lawsuit against Cincinnati Insurance Co. brought by a group of hair salons and restaurants to proceed. U.S. District Judge Stephen Bough in Kansas City did not comment on the merits of the case. However, in refusing to dismiss it, Bough said the “presence of COVID-19 was not a ‘benign condition,’ and the plaintiffs plausibly alleged that particles were a ‘physical substance’ that attached to and damaged their property, rendering them unsafe and unusable,” Reuters reported.
In a related development, an insurer-supported attempt to consolidate numerous coronavirus-related lawsuits filed against various insurers recently was denied by a panel on multidistrict litigation (MDL). The U.S. Judicial Panel on Multidistrict Litigation rejected the proposals by plaintiffs in 15 lawsuits from Illinois and Pennsylvania to either consolidate all cases brought by multiple businesses against various insurers for coronavirus-related business losses into one proceeding or create regional and state-based MDLs
The panel concluded that the requested centralization “will not serve the convenience of the parties and witnesses or further the just and efficient conduct of this litigation.” It did, however, leave open the possibility of consolidation of cases by insurer.
Was this article valuable?
Here are more articles you may enjoy.