Some Wins and Some Losses For Businesses Seeking Business Interruption Coverage For COVID-19 Claims
National trends in the outcome of business interruption insurance cases remain elusive as claimants prevail in North Carolina and the UK, but not in Minnesota and California.
Last month, the UK’s High Court of Justice issued a pro-claimant ruling in a test case brought by the Financial Conduct Authority consolidating the claims of small businesses whose insurers denied coverage for COVID-19 losses. British claimants have further reason to be hopeful as Insurers have now dropped their appeal of the High Court’s ruling.
In North America, small businesses may take heart from the North Carolina court’s decision in North State Deli LLC et al. v. The Cincinnati Insurance Co. et al., case number 20-CVS-02569, granting summary judgment to a group of restaurants on the basis that business interruption losses arising out of pandemic-related government orders qualify as “physical losses”, covered under Cincinnati’s policy.
However, a Minnesota federal judge, evaluating almost identical claims, found in favor of the insurers in Seifert et al. v. IMT Insurance Company, case number 20-1102. The Court found that "simply claiming 'mere loss of use or function' is not enough" to establish a physical loss.
In California, a district court judge found that a technology start-up’s claim for coverage was precluded by their policy’s virus exclusion. The case is Founder Institute Inc. v. Hartford Fire Insurance Co., case number 3:20-cv-04466.
California Tracking Company Alleges Insurer Lied About Coverage to Sell Business Interruption Policy For Pre-Pandemic Claims
Another California action, however, may suggest a new tactic for businesses whose claims have been denied. Earlier this month, tracking company Lockandlocate LLC filed against Hiscox Insurance Co. in California, alleging that an agent misrepresented the scope of Hiscox’s coverage to induce Lockandlocate to buy a policy that did not cover losses accrued when a third-party vendor stopped providing location data.
Lockandlocate tracks trucker movement using data purchased from a vendor, Location Smart, that collects from AT&T, Verizon, T-Mobile and Sprint. In October 2018, Location Smart notified Lockandlocate that its access to Verizon and Sprint’s data would be cut off in December. A month later Hiscox denied Lockandlocate’s notice of claim for business interruption losses it anticipated suffering as a result. In January 2019, Lockandlocate closed shop and filed a second claim against its policy which, once again, was denied by Hiscox.
In the Complaint, filed in the Central District of California, Lockandlocate alleges that when it purchased Hiscox’s policy in June of 2018, an (unidentified) Hiscox agent specifically represented that the policy covered business interruption due to loss of access to third-party data. Lockandlocate claims that it purchased the policy to supplement its pre-existing Hiscox Errors and Omission coverage on the basis of that representation. Lockandlocate claims that, as a result, Hiscox is liable for (i) breach of oral contract; (ii) breach of the duty of good faith and fair dealing; (iii) intentional or negligent misrepresentation; (iv) negligence; (v) reformation and (vi) violations of California’s Business & Professions Code.
While all of Lockandlocate’s claims accrued prior to the spate of government regulations issued to address the pandemic, the case represents a novel approach for entities suffering business interruption losses that their insurers have declined to cover.