California Music Venues Sue Insurer over Business Interruption Related to COVID-19

May 15, 2020

San Francisco Bay Area-based music venue Ivy Room has filed a class action lawsuit on behalf of California-based music venues against a major insurance provider, saying the venues were wrongfully denied coverage for losses resulting from public health shutdowns related to COVID-19 despite having paid premiums for business interruption policies.

Ivy Room is represented by California-based Gibbs Law Group, as well as Cohen Milstein Sellers and Toll PLLC. The firms are reviewing potential claims on behalf of small business owners throughout the country who have been affected by insurance companies’ refusal to pay.

Ivy Room, located in Albany, is a historic neighborhood bar and music venue that hosts national and local acts. The lawsuit alleges, among other things, that First Mercury Insurance Co. acted in bad faith by categorically denying claims from music venues arising from California’s mandated interruption of business services. According to the complaint, First Mercury denies the claims with little or no investigation and without regard for the interests of policyholders.

The American Property Casualty Insurance Association, the largest trade group representing P/C insurers, has argued if insurers are forced to pay for losses that are not covered under existing insurance policies, “the stability of the sector could be impacted and that could affect the ability of consumers to address everyday risks that are covered by the property casualty industry.”

Britain’s Financial Conduct Authority (FCA) aims to get business interruption insurance policies examined by a court as soon as July, a member of a policyholder action group said on Thursday.

Business interruption policies were generally not designed to provide coverage against communicable diseases, according to a statement in March from the National Association of Insurance Commissioners.

“Insurance works well and remains affordable when a relatively small number of claims are spread across a broader group, and therefore it is not typically well suited for a global pandemic where virtually every policyholder suffers significant losses at the same time for an extended period,” the NAIC statement reads. “While the U.S. insurance sector remains strong, if insurance companies are required to cover such claims, such an action would create substantial solvency risks for the sector, significantly undermine the ability of insurers to pay other types of claims, and potentially exacerbate the negative financial and economic impacts the country is currently experiencing.”

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