(July 13, 2020) – A Wisconsin insurance company is being sued for denying business claims resulting from Covid lockdowns. Two lawsuits were filed in federal court in Illinois in April by a group of businesses that suffered losses after being forced to close their doors by government authorities that cited the so-called Covid-19 pandemic. The Wisconsin-based insurer, Society, denied the business interruption claims of the businesses. The suits were subsequently filed in the U.S. District Court for the Northern District of Illinois, Eastern Division.

Businesses vs. Society Insurance

The plaintiffs are two separate businesses that operate in Chicago. The case is Big Onion Tavern Group LLC et al. v. Society Insurance Company (No. 1:20-cv-02005). All of the plaintiffs’ businesses had purchased interruption insurance from Society Insurance.

The plaintiffs in Billy Goat Tavern I et al. v. Society Insurance (No. 1:20-cv-2068) are affiliated companies which bought commercial coverage from Society Insurance. The suit also seeks class action status to represent all similarly-situated businesses in Illinois.

The Illinois lawsuits are similar to a suit filed in March by Thomas Keller, owner of the French Laundry Restaurant in San Francisco, and a suit filed by the Bouchon Bistro in Napa Valley, California. Mr. Keller filed against a unit of The Hartford. New Orleans’ Oceana Grill also filed a similar suit in March against a Lloyd’s of London insurer. All the actions challenge business interruption coverage denials in which insurers have alleged that losses from pandemics are not covered under most business insurance policies.

Society Insurance – based in Fond du Lac, Wisconsin – insures bars, taverns, hospitality enterprises, restaurants, entertainment venues, and other specialty businesses.

Illinois Closures and Lockdowns

On March 15, 2020, Illinois Gov. J.B. Pritzker ordered all restaurants, bars, movie theaters, and several other businesses to close.  The goal, he said, was to prevent the spread of the Covid-19 virus. On March 20, the governor ordered the closure of all of what were termed (arbitrarily, in many business owners’ minds) “non-essential” businesses.

Both the Big Onion and Billy Goat business entities seek coverage under commercial business insurance policies. Their lawsuit petition in the Big Onion lawsuit reads that their insurance policies: “. . . provide coverage for losses incurred due to a ‘necessary suspension’ of their operations, including when their businesses are forced to close due to a government order.”

The businesses claim breach of contract, among other causes of action, and they seek declaratory relief.

The petition alleges that the Society Insurance policies they purchased promise to cover losses that occur when government-forced closures interrupt businesses.

Lawsuit Claims Viruses not excluded

Both suits also say the plaintiffs’ Society Insurance policies do not exclude contamination due to communicable diseases and/or viruses.

The Big Onion lawsuit petition states: “If Society Insurance had wanted to exclude pandemic-related losses under the Plaintiffs’ policies – as many other insurers have done in other policies – it easily could have attempted to do so on the front-end with an express exclusion.”

Blanket Denials? “Agency Partners”

Big Onion also alleges that Society Insurance issued blanket denials of plaintiffs’ claims for business interruption resulting from the governor’s closure orders. The petition states Society denied claims “often within hours of receiving Plaintiffs’ claims — without first conducting any meaningful coverage investigation, let alone a ‘reasonable investigation based on all available information’ as required under Illinois law.”

An attorney representing the Chicago plaintiffs told the industry publication Claims Journal that one of his clients was notified his business’ claim was denied even before he filed it. The lawyer said the business owner’s insurance agent filed the claim on his customer’s behalf, and Society called the policyholder directly.

According to the Big Onion lawsuit, Society’s CEO Rick Parks issued a memorandum to “agency partners.” It said that under Illinois law, the policies would likely not cover such stoppages. Obtained by Insurance Journal, that memo advises agents: “[W]hile the current circumstances are unlikely to result in facts that support first-party coverage under our policies, or liability to a policyholder, we encourage any policyholder or third-party claimant who wishes to present a claim to do so.”

Physical Loss or Damage to Property

The memo adds:

“Whether it be a full shutdown of business, a partial suspension of operations or an alteration in business operations that remain open, Business Income coverage must be due to a suspension caused by direct physical loss of or damage to covered property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss. Extra Expense coverage also requires the same coverage triggers. In general, a quarantine of any size, or brought about by a governmental action without a Covered Cause of Loss, would likely not trigger Business Income or Extra Expense coverages under our policies.”

Big Onion challenges Society Insurance’s conclusion that the “actual or alleged presence of a substance like Covid-19 does not result in property damage,” which is one condition for triggering coverage for business interruption under the commercial insurance policies. The Big Onion suit states: “Illinois courts have consistently held that the presence of a dangerous substance in a property constitutes ‘physical loss or damage.’”

The Virus Exclusion Problem for Businesses

The problem for restaurants and taverns is that the majority of business interruption policies do not cover business income losses unless the insured premises are physically damaged by an event that precipitates a claim. While the Big Onion and Billy Goat lawsuits allege that their policies don’t specifically exclude communicable diseases, most Business Interruption policies that our law firm has seen do exclude them.

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by Matthews & Associates