The rare gain of small businesses in insurance claims keeps life expectancy in payments

“I’m excited to have gotten this far, but that excitement and victory doesn’t translate into relief until the job is done,” Kelly said.

Cases like Kelly’s keep alive the hope that some small businesses can receive money from insurance to help them recover from government-ordered shutdowns.

In hundreds of lawsuits across the country, most small businesses have sued their property insurance companies for refusing to pay pandemic-related “business disruption” claims. Many insurers say their policies contain plain language excluding virus-related claims, while most claims have not met the criteria for their policies either.

Many courts have supported insurers in their denials of payments, but companies are moving forward. Of the approximately 100 rulings on lawsuits facing companies against insurers, approximately three-quarters have been in favor of insurers, according to a Covid-19 lawsuit tracking effort at the University of Pennsylvania’s Carey Law School.

Mr. Kelly, 44, was planning to open a fifth restaurant when he suffered the coronavirus. Instead, he set aside those plans and laid off about 100 employees. “It’s depressing,” he said, sitting in his Mateo Tapas Bar still open in Durham. A cap was removed to reveal baldness. “My hair is falling out” from the stress, he said.

Like many restaurant owners, Mr. Kelly said he has taken on a huge amount of debt (about $ 1.3 million in his case) to keep the restaurants open. Currently, two of its four restaurants are closed.

Among the challenges for policyholders, business interruption insurance coverage usually requires “direct loss or physical damage” for having caused the interruption. Insurers often interpret this as tangible damage to property that requires repairs or rebuilds.

Business outage coverage is a subset of property insurance and, with few exceptions, insurers say they did not charge premiums for virus-related claims. Instead, most have included some form of virus-specific exclusion since the SARS scare of the early 2000s.

The North Carolina ruling points to the types of lawsuits that may have the best chance of overcoming the industry’s defenses, lawyers say. Case policies, issued by Cincinnati Financial units Corp.

and covered a total of 16 restaurants, did not contain a specific exclusion of viruses.

The lawyers of Mr. Kelly focused on the absence of definitions in policies for terms such as “physical loss.” They also stated that previous North Carolina resolutions do not impose requirements for structural damage, as argued by Cincinnati Financial and most insurers.

At a September hearing, Mr. Kelly was masked and socially distanced from the other restorers, as Judge Orlando Hudson said he would decide in favor of the insured. In his subsequent written opinion, the judge said the ordinary meaning of “direct physical loss” includes “the inability to use or possess anything in the real, material, or bodily world.”

In its statements, Cincinnati Financial argues that its policies do not provide coverage for economic damages in the absence of “direct physical loss” to the property, and said that loss requires physical damage.

“We continue to believe that business interruption coverage under our property policy in this case does not apply because there was no structural modification to the property,” Cincinnati Financial spokeswoman Betsy Ertel said. “The predominant view of courts across the country has been that only an economic loss does not qualify as direct physical damage or loss of property, which is the trigger for business interruption coverage.”

The financial losses of the restaurants will be determined later and could reach $ 10 million at the 16 restaurants, said Gagan Gupta, one of the plaintiffs’ attorneys.

According to the University of Pennsylvania Law School database, national and federal state courts have been picking up pace in recent weeks in ruling on more than 1,300 business interruption coverage disputes. of Covid-19. On December 21 alone, at least four separate federal courts handed down sentences. Three granted the insurers’ motions to dismiss them and the fourth denied this motion and allowed the policyholder’s case to be advanced. About 150 volunteer lawsuits were withdrawn, said Tom Baker, a professor at Penn Law School.

Some policyholders are succeeding based on previous rulings in which judges concluded that things like fire smoke, gasoline vapors and carbon monoxide created property damage for business interruption coverage purposes, they said. the lawyers.

“Experts will be said to say that, statistically, the virus is likely to be on the property,” said Robin Cohen, director of the McKool Smith law firm.

In November, a Clark County, Nevada judge denied an insurer’s request to dismiss a case in which Ms. Cohen’s client, JGB Vegas Retail Lessee LLC, alleged that the coronavirus spread through of infected exhaled drops “which adhere to and cause damage to other objects.” The insurer has filed a motion for reconsideration.

Adam Moskowitz, a Florida class counsel representing numerous policyholders, said insurers “should not be comforted” by their initial successful careers, as some involved less experienced lawyers who jumped on the bandwagon. at first with weak cases.

Insurers ’attorneys acknowledge that tougher fights occur in cases that present unique circumstances, caused by law firms with deep insurance experience. But they remain confident that the first successes will continue.

“We will litigate legitimate disputes,” said Steven Badger of Zelle LLP, which represents insurers. “These will be resolved like all insurance coverage disputes, by trial or resolution.”

Write to Leslie Scism at [email protected]