Apr.12.2021
Courts Dismiss COVID-19 Business Interruption Claims
On April 9, 2021, the district court for the Central District of California granted Topa Insurance Company’s motion to dismiss a restaurant and nightclub’s COVID-19 related claim. According to the court, the policy “clearly condition[ed] recovery on physical loss or damage to the insured premises” (Order at 5), and the complaint alleged only that the coronavirus “prevented it from using its property for” its intended purpose, which is not enough to “allege direct physical loss or damage.”
Id. at 6. The court held that “even if the Policy covered permanent dispossession, which it does not, Caribe has not alleged permanent dispossession, nor could it, as COVID-19 safety orders only temporarily restricted Caribe’s use of its premises.”
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Insurers generally have a statutory duty to provide a legitimate factual and legal basis to deny a claim, and to discharge this duty sometimes engage in-house or outside counsel to assist in the investigation and handling of policyholders’ claims for coverage, including ghostwriting coverage correspondence and denials of coverage. The decision to outsource ordinary claims investigation and handling to legal counsel (putting aside that many claims handlers are lawyers) comes at a price. Two recent court rulings highlight that insurers’ decision to use in-house or outside counsel to ghostwrite coverage correspondence can come back to haunt them by waiving any alleged privilege.
Mar.15.2021
Courts Dismiss COVID-19 Business Interruption Claims
On March 8, 2021, the district court for the Southern District of California granted Travelers Property Casualty Company of America’s motion to dismiss a flower importer and distributor’s COVID-19 extra expense claim. The court found that the policy’s Acts or Decisions Exclusion which “bars coverage for property damage, loss, and expense that is caused by or results from any decision, act or failure to act or decide, by…any ‘governmental body,’” unambiguously excluded coverage.
See Order at 13. Because Travelers based its denial of coverage on the applicable exclusion, the court similarly dismissed the plaintiff’s breach of implied covenant of good faith and fair dealing claim.