Florida Dive Shop Alleges Insurer Breach of Contract, Bad Faith in BI Denial Suit

By | April 22, 2020

A dive shop in South Florida is one of the first businesses in the state to file suit against its insurer for the denial of a business interruption claim initiated because of the current coronavirus pandemic.

The lawsuit, Mace Marine Inc., dba Conch Republic Divers v. Tokio Marine Specialty Insurance Co., claims the dive shop’s business interruption claim denial was improper, in bad faith, a breach of contract and that the dive shop has been injured and suffered financial harm as a result. The suit, filed April 6, asks for $30,000 in damages, exclusive of attorney fees. The dive shop is located in Tavernier, Fla., and is being defended by the Landau Law Group of Boca Raton, Fla.

The suit claims that the Conch Republic dive shop had a commercial lines policy that covered business income, extra expense, ingress/egress and civil authority. Conch alleges in the complaint that it ceased operations and closed its business by order of the State of Florida and Monroe County in March because of the COVID-19 outbreak. Conch was not deemed an essential business and was unable to remain open so it filed a claim under its business income coverage, which was subsequently denied on March 30.

The suit claims the denial was improper because the dive shop’s policy contains coverage for acts of civil authority, which precluded Conch from operating its business. The suit also cites the CDC and WHO as stating the virus can spread from person to person through contaminated objects and surfaces and recommends the routine cleaning of all frequently touched surfaces and disinfection-level deep cleaning of surfaces thought to be contaminated.

“A surface that is touched by a person infected with COVID-19 is presumed to be contaminated,” the suit states. “Accordingly, the presence or danger of COVID-19 on property renders that property unusable and non-functioning until such time as the property is sanitized.”

As such, the property owned by the dive shop was “capable of being contaminated by direct physical contact by an infected person(s) either knowingly or unwittingly,” rendering the property owner temporarily unable to use its property even though structurally unaltered “until such property is sanitized.”

The suit alleges the insured will incur extra expenses for cleaning and sanitizing its equipment and property and that, pursuant to the policy, it was insured for business income losses and extra expenses.

“Plaintiff suffered a loss of business income and extra expenses as a direct result of the pandemic, acts of civil authority and other causes beyond its control,” the suit states.

The suit claims the insurer’s “wrongful denial of coverage breached the policy” and that, subject to limitations and exclusions, the policy insured against all risks of direct physical loss or damage to the insured’s property. Additionally, a pandemic is a type of risk that was not excluded under the policy and the insurer’s failure to fairly adjust the claim, investigate the loss and cover undisputed damage constitutes bad faith.

The suit also alleges the policy contains coverage for acts of civil authority and that civil authority actions precluded the dive shop from operating its business because it is not “essential” as defined under the civil authority orders.

The plaintiff demands a jury trial and calls for a declaratory judgement from the court to affirm that a pandemic is a covered cause of loss not subject to any exclusion under the policy, that contamination from COVID-19 constitutes a direct physical loss or damage to property, and that the inability to used the property because of the risk of contamination from COVID-19 is tantamount to direct physical loss of that property. It also requests a declaratory judgement that “acts of civil authority” are tantamount to a direct physical loss or damage to property.

In an email to Insurance Journal, attorney for the insured Conch Republic Divers, Matt Landau, said the policy does not have a pandemic exclusion and it makes limited reference to virus, “which we believe does not apply here.”

“The insurer could have provided a direct exclusion for viral outbreaks such as this and did not, rather we believe they are manipulating the policy language to avoid having to pay valid claims,” Landau said.

Landau added the firm will be filing additional lawsuits related to business interruption coverage throughout Florida in the coming days. At this point, at least two other suits have been filed in Florida against insurers by other firms – Prime Time Sports Grill vs. Lloyds of London and Cafe International Holding Company LLC vs. Chubb Ltd.

A spokesperson for Tokio Marine Group said the insurer had no comment on the case at this time.

The Florida case is one of many that the industry is facing from businesses over business interruption coverage denials. The industry has been under increasing pressure from everyone from President Donald Trump to insurance regulators and lawmakers to investigate and cover business interruption claims.

The industry has responded by saying they are being asked to rewrite the terms of insurance contracts, which it says is unconstitutional, and doing so would bankrupt the industry.

Insurance defense attorney with Florida firm Kelley Kronenberg Jeffrey Wank, who is not associated with the aforementioned suit, said every insurance policy is different and if coverage is available to businesses because of losses from the pandemic will depend on the specifics in the language of the policy and that is typically interpreted very broadly by Florida courts.

“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 said. “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 said businesses, such as the Conch Republic Divers, argue they have had to close their doors to clean their properties and government proclamations have required the business to shut down and that amounts to actual physical damage as a result of COVID-19. But, he notes even if there is actual physical damage, many policies exclude viruses, pandemics and bacteria. Unless the policy does not have those exclusions, coverage is not likely to be triggered.

The ultimate decision for these cases will be up to the courts and it is uncertain at this point how each court will interpret these coverage disputes, Wank said.

“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.

About Amy O'Connor

O'Connor is the Southeast editor for Insurance Journal and associate editor of MyNewMarkets.com. More from Amy O'Connor

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Latest Comments

  • April 23, 2020 at 9:34 pm
    Well... says:
    27 year diver. Dive instructor for the last 10. No exhaled air would ever get back into the tank. Masks, snorkels, regulators are typically disinfected. Everything else gets a... read more
  • April 23, 2020 at 3:36 pm
    Bill says:
    I'm no diver, but does any air exhaled from the diver even get back into the tank? We aren't talking about re-breathers here. Exhaled air is released through the mouth piece... read more
  • April 23, 2020 at 10:26 am
    Bill says:
    The real winners here are the defense lawyers who are billing by the hour. I'm presuming that most policyholder attorneys are working on a contingency basis, but that's unlike... read more

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