A ruling in Kansas City federal court could pave the way for thousands of businesses rejected by their insurers for COVID-19 business interruption claims.
“This is potentially huge,” Tom Baker, professor of law at the University of Pennsylvania told the Kansas City Star. “My prediction is that this is not going to be the only case that is going to survive. This is a big deal.”
Three Kansas City restaurants — Grand Street, V’s Italiano Ristorante, and Trezo Mare Restaurant & Lounge — were among dozens of other restaurants and bars in the city that had to shutter during government mandated closures to stop the spread of the coronavirus. The owners of the restaurants filed business interruption claims with their insurance companies seeking coverage for payroll and bills.
Business interruption insurance is part of a business owner’s policy. It covers operating expenses in the event a business must temporarily close due to a disaster. For example, if a fire breaks out in a restaurant and it must close for a short time for repairs, the company’s business interruption insurance steps in to pay for payroll and bills. But their insurance company said pandemics weren’t the kind of disaster they cover. And that didn’t sit well with the restaurant owners.
“I’ve had business interruption insurance for 57 years,” said Greg Hunsucker, owner of V’s. “My impression was that this is exactly what it’s for, when events out of your control cause you to suffer financial hardship. That’s why I thought I was buying it. Nowhere in my policy does it exclude a pandemic.”
But on Aug. 12, Western District of Missouri Judge Stephen R. Bough refused to dismiss the case, finding that the restaurants had suffered “direct physical loss” when particles of coronavirus flung into the air and landed on their property. This damaged the property and made it unsafe for consumers to be in their restaurants.
It was a noteworthy ruling, as in previous cases in Michigan and Washington, D.C., insurers were able to convince the court that since the restaurants didn’t suffer any physical damage, they were not entitled to business interruption insurance.
It also makes a case for businesses to go ahead and file business interruption claims with their insurance companies even if they suspect their claims will be rejected. Getting it on record is especially important for establishments considering filing a lawsuit against their insurers.
Beasley Allen lawyers are actively investigating and filing claims against various insurance companies for denial of business interruption coverage during the COVID-19 pandemic, and are involved in advocating for consolidation of these actions in multidistrict litigation (MDL). Dee Miles, head of our Consumer Fraud & Commercial Litigation Section, Rachel Boyd, and Paul Evans, lawyers in the Section, are spearheading this litigation for our firm and are monitoring all MDL developments as they arise.