Tuesday, July 28, 2020

Cheers bar joins the fray -- files lawsuit for business interruption coverage for Covid-19 losses

Some (actually not so) important background: when the TV show Cheers was popular, a bar opened in Boston which was named Cheers to attract tourists who were fans of the show.  Natives knew that the "legitimate" Cheers bar was the Bull & Finch Pub, on Beacon Hill -- because the exterior of the TV show's bar was shot there.  Back in the day, it was a pretty good bar, although nobody knew my name when I went there.  Eventually the fake Cheers bar also took over the Bull & Finch and renamed it Cheers. 

Yesterday Hampshire House Corporation, the owner of both Cheers bars as well as a couple of other restaurants, filed a lawsuit in the United States District Court for the District of Massachusetts against Fireman's Fund Insurance Company, Associated Indemnity Corporation, and Allianz Global Risks United States Insurance Company, alleging that the insurers have wrongfully denied coverage for business interruption claims caused by -- not the Covid-19 pandemic, but the emergency orders limiting the operation of restaurants during the pandemic.  Presumably that is because the policies have a virus exclusion that would apply to pandemic losses. 

According to the complaint, the emergency orders "were not a foregone conclusion or obvious consequence of the Covid-19 pandemic, as evidenced by the great variance between states and localities as to the types and extent of restrictions placed on business and public activities." 

The complaint alleges that the emergency orders caused Hampshire House to lose the ability to provide restaurant, alcohol, and retail sales, prevented its customers from physically occupying the premises, and caused the properties to be physically uninhabitable.  According to the complaint, those losses constituted "physical loss of and damage to the insured properties for regular business operations."  Since the policies cover physical loss and damage, the business losses from the emergency orders are covered losses. 

Hampshire House takes issue with the insurers' across-the-board denial of all Covid-19 business interruption claims, alleging that the insurers have a duty to investigate the different circumstances that apply to each claim. 

Wednesday, July 22, 2020

Insurance for PPP loans

My first thought was that insuring against the possibility that the Small Business Administration may find that a business was not eligible for a loan it received from the Paycheck Protection Program, or PPP,  was a little . . . off.  Sure, regulations about eligibility for the loan itself and for loan forgiveness seem to change every day, but how can you insure a business against receiving funds that it should not have received?  I don't want to minimize the importance of those funds in keeping many businesses afloat during the pandemic, but still, the insurance struck me as counterintuitive.

As with so many things, the reality is a bit more complicated.  Businesses applying for PPP funds are required to certify that the funds are necessary to support their ongoing operations.  But what does "necessary" mean?  Despite the uncertainty, the SBA may review loans of a certain size -- currently, $2 million or more -- for whether they actually were necessary.  It is empowered to impose fines and treble damages for statements that are found to be false and misleading.

The purpose of insurance is to protect against uncertainty.  There is enough uncertainty in the PPP rules for it to make sense that businesses consider insuring against the possibility that they will have to repay those funds.

Thanks to Kelly Beaudoin in the Manchester office of HUB International for letting me know about this insurance. 

Friday, July 17, 2020

Shameless self-promotion: The accolades keep rolling in

In the obligatory "I am not a robot" paragraph on the biography page of my website I mention that I am an award-winning poet.  Previous awards have now been completely overshadowed.  I am  thrilled to announce that Randy Maniloff of the otherwise excellent online magazine Coverage Opinions has chosen my poem as a winner of the Coverage Opinions 2020 Home Quarantine Haiku Contest.  My prize, an autographed copy of John Grisham's Camino Winds, arrived in today's mail.

My haiku:

Coverage lawyer

Blouse no pants on Zoom meeting

Not much coverage

Poetic license and all that. 

Tuesday, July 14, 2020

Mass. Appeals Court holds insurer estopped from denying lead paint coverage when it did not inform policyholder that lead paint certificate was insufficient

In 1992, John Cerasuolo sought to purchase coverage for lead paint claims that might arise from an apartment building he owned with his wife.  His agent told him that he would have to obtain letters of compliance in order to obtain such coverage, but did not explain what a letter of compliance was or how to obtain one.

John had the apartments inspected by a lead inspector, who issued letters for each unit that John incorrectly believed were letters of compliance.  He submitted them to his agent, who submitted them to Northern Security Insurance Company.  Over the next years Northern issued consecutive insurance policies to the Cerasuolos.  John believed that the policies provided the requested coverage for lead poisoning claims.  

In 2010, a tenant notified John of  lead paint claim.  Northern declined to defend or indemnify, on the ground that the Cerasuolos had not submitted a letter of compliance.

Two juries determined that Northern was estopped to deny coverage.  In Rabassa v. Cerasuolo, __ N.E.3d __, 2020 WL 3635887, the Massachusetts Appeals Court affirmed.

Northern contended that estoppel cannot create coverage.  Without ruling on whether Massachusetts has adopted the general rule that the doctrines of waiver and estoppel will not create, enlarge, or expand the coverage of a policy, the court noted that the general rule has exceptions.  One exception is when an insurer misrepresents the extent of coverage to an insured, thereby inducing the insured to purchase coverage which does not cover the disputed risk.

The court held that the facts of the case fell into the exception.  John specifically requested coverage for lead poisoning claims.  Northern, through its silence when it had a duty to speak, misrepresented that the polices provided the requested coverage.  Relying on that misrepresentation, the Cerasuolos purchased the policies.

The court relied on expert testimony that Northern had a duty to inform the Cerasuolos that the documents they submitted were insufficient for lead paint coverage.  It affirmed the jury's finding that the Cerasuolos' reliance was reasonable.