Business interruption and property damage coverage for businesses affected by riots

As I discussed here, most businesses do not have insurance coverage for business interruption as a result of the coronavirus pandemic.  There are some attempts at legislation to retroactively change that, and some class action lawsuits challenging the exclusions that prevent the coverage. 

Now, just as businesses are starting to reopen, many of them have been vandalized in riots.  Some are afraid to open because of the fear of additional violence.  Others may be unable to open as a result of curfews.

The good news is that most business property policies do provide coverage for property damage and business interruption as a result of civil unrest.  The business interruption coverage generally requires either property damage or shutdown as a result of an order by a civil authority, so coverage is unlikely if a business owner fears damage from riots but has not been ordered to shut down.

In the bigger picture and the longer term, the best way to prevent business losses from riots is justice for everyone.  Black lives matter.  

Class action lawsuit filed over insurer's denial of claim for trip insurance on ground that trip cancellation due to coronavirus does not come within definition of quarantined

A class action lawsuit against a travel insurance company was filed yesterday in the United States District Court for the District of Massachusetts, seeking reimbursement for money paid for a school trip canceled due to the coronavirus pandemic.

In Corrigan v. EF Education Tours, Inc., et al, Amy Corrigan alleges that in October 2019 she enrolled her daughter, an 8th grader, in a school trip to Spain that was scheduled for April 2020.  She paid in full over $4,000 for the trip, which was coordinated by EF Education Tours and related organizations.

In November 2019, Corrigan purchased travel insurance marketed by EF and apparently written by United States Fire Insurance Company (USFIC).  The coverage  included reimbursement of trip costs if the student was prevented from traveling because she was "quarantined."  According to the complaint "quarantined" was not defined by the policy.

On March 12, 2020, EF announced that it was postponing all tours scheduled for April because of the coronavirus pandemic.  As we know, later that month the Massachusetts governor issued an executive order restricting public movement of non-essential personnel and banning gatherings of ten or more people.  He subsequently closed all public schools through the end of the school year. On March 31, 2020, the United States Department of State advised US citizens to avoid all international travel due to the pandemic.

Corrigan sought reimbursement from USFIC for the funds she had paid for the trip.  USFIC denied the claim, stating that trip cancellation due to the state quarantine and the threat of COVID-19 did not come within the coverages of the policy.

Corrigan's class action complaint alleges breach of contract, breach of the duty of good faith and fair dealing, unjust enrichment, and conversion.

This lawsuit is at the very beginning stages.  I expect to see many similar suits filed against trip insurers, summer camp insurers, and the like.  But I do note that if Corrigan's allegations are correct, her policy differs from others that I have seen that do in fact provide a definition of "quarantined."  In insurance coverage disputes, it is (almost always) the terms of the specific policy that will control the outcome.

First Circuit holds that church group splintering off from church is not covered by church's directors and officers coverage

The definition of the word chutzpah is when a man kills both his parents and then begs for the court's mercy because he is an orphan.

Typically I would not apply a Yiddish word to a church dispute.  And yet . . .

In January, 2017, members of the Newton Presbyterian Church (NPC) voted to withdraw from the national Presbyterian organization.  The withdrawing members called themselves the Newton Covenant Church (NCC).  The schism arose because the withdrawing members disagreed with the progressive stance of the national organization with respect to same-sex marriage and the ordination of gay, lesbian, bisexual, and transgender ministers.

NPC and the Boston affiliate of the national organization sued NCC and its officers, alleging that they had unlawfully exerted control over real property and bank accounts owned by NPC, had rejected the church's authority to resolve an ecclesiastical schism, and had conducted a vote not authorized under the constitution of  national organization. They sought in part a declaratory judgment that NPC owned church property at 75 Vernon Street in Newton, Massachusetts.

The Massachusetts Superior Court granted partial summary judgment to NPC.  It also held that NPC is the sole and exclusive owner of the real property and ordered NCC and its members to vacate the premises.  The parties subsequently settled. 

NCC had requested a defense from Great American Insurance Company (GAIC) under a Directors and Officers policy GAIC had issued to NPC. NCC asserted that it  was the same legal entity as NPC. GAIC denied the claim.

In Newton Covenant Church v. Great Am. Ins. Co., 956 F.3d 32 (1st Cir. 2020), the United States Court of Appeals for the First Circuit held that NCC was not covered by the policy.  The policy defined "Insured" as the "Organization" and "Insured Persons."  The policy defined the "Organization" as the entity named in the declarations, which in this case was the NPC.  The policy defined "Insured Persons" as "persons who were, now are, or shall be directors, trustees [or] officers . . . of the Organization."

The court held that there was no coverage even to the extent that NCC claimed that it was a segment of the original NPC, and therefore within the definition of Insured, because the policy contained an exclusion for claims between insureds.  The same exclusion excluded coverage to the extent that NCC claimed that it was the original NPC and had simply undergone a name change.  "Because insureds would be on both sides of the litigation, the exclusion would apply."

View webinar on Insurance Issues for New Personal Injury Attorneys

On May 6, 2020 I moderated a Boston Bar Association panel on Insurance Issues for New Personal Injury Attorneys.  Many thanks to panelists Frank Riccio and Andy Caplan, who did a stellar job.  You can view the webinar here.

Free Boston Bar Association webinar: Insurance Issues for New Personal Injury Attorneys

This Wednesday, May 6, 2020 from 12:30 to 1:30 PM I will be moderating a Boston Bar Association panel discussion webinar with Frank Riccio and Andy Caplan on Insurance Issues for New Personal Injury Attorneys. 

Like all BBA webinars at this time, it is free for both members and non-members.  If you are a member you can sign up here.  If you are not a member, send me an email (my contact information is on the left) and I'll put you in touch with someone at the BBA who will give you a link to log in. 

First Circuit holds that deemed-made clause in claims-made policy requires only notice of the possibility that a claim will be brought against the policyholder

On September 23, 2013, the SEC began investigation of an investment advisory firm called F-Squared.  An investigation order (the "Formal Order") indicated that the SEC had information that tended to show that from at least January 1, 2009, F-Squared had distributed false and misleading advertisements to clients or prospective clients in violation of law. 

On October 2, 2013, the SEC served a subpoena on F-Squared in connection with the investigation. On October 18, 2013, upon request from F-Squared, the SEC provided it with a copy of the Formal Order.

F-Squared had been issued a primary insurance policy by Columbia Casualty Company for two consecutive policy years.  For the first year, October 3, 2012 to October 3, 2013, F-Squared had an excess policy from Federal Insurance Company,  The total limit between the two insurers for that  policy year was $10 million.

For the second policy year, October 3, 2013 to October 3, 2014 F-Squared had additional excess coverage from Zurich and XL, for a total of $20 million in coverage.

The policies were claims made policies that provided coverage for "any claim first made against F-Squared during the policy period."  The policies had a "deemed-made" clause under which a claim is deemed "first made" upon "an insured being identified by name in an order of investigation [or] subpoena . . .  as someone against whom a civil. criminal, administrative or regular proceeding may be brought."

F-Squared notified the insurers of the investigation and requested coverage under the policies. Columbia and Federal paid their combined $10 million policy limit for the 2012-2013 policy year.

The other excess insurers denied coverage on the basis that the SEC investigation constituted a claim that was first made prior to the 2013-2014 policy year.

F-Squared filed for bankruptcy.  Craig Jalbert, in his capacity as trustee of the F2 Liquidating Trust, sued the excess insurers.   He argued that the deemed-made clause was inapplicable because the Formal Order did not state that the SEC would bring a proceeding against F-Squared.  He argued that the phrase "may be brought" in the deemed-made clause required a "reasonable possibility," not a  "weak possibility" of a claim.  He asserted that the Formal Order did not indicate whether and to what extent SEC proceedings against F-Squared were a reasonable possibility.

In Jalbert v. Zurich Services Corp. 953 F.3d 143 (1st Cir. 2020), the United States Court of Appeals for the First Circuit disagreed.  It held that the deemed-made clause precluded coverage because the word "may" in the clause required only notice of a possiblity that a proceeding will be brought, and the Formal Order expressed such a possibility.

Insurance coverage for loss of income from business interruptions due to coronavirus

Last time I posted about coronavirus liability insurance issues, a little more than a month and a lifetime ago, I had no idea that I would be writing this post from my home office, taking my temperature every few hours because I need to go three days with  no fever before I can stop self-quarantining away from my kids.  I am grateful for how lucky I have been: that my kids are old enough that they've been able to handle little supervision beyond my pestering them by text; that I did not get sicker; that friends and acquaintances and even strangers have helped my family out in all kinds of ways, from deliveries of toilet paper to making masks for us; and that I have a law practice will survive my not working for a couple of weeks.

Many businesses are worried that they will not survive.  One of the questions for them is whether they can recoup their coronavirus losses from their general liability insurance.  These are the major issues that arise from that question: 

·       Does the business interruption insurance provide coverage for loss of income from coronavirus?  

As with every insurance question, the first place to look is the language of the policy. 

Most policies provide business interruption coverage in the case of "direct physical loss or damage" to the insured property (such as a fire loss).  

There will no doubt be litigation over whether the coronavirus itself is damage to the property, at least where there were known cases of coronavirus at the business which caused it to shut or lose revenue.  

Many policies have an exclusion for losses due to viruses or bacteria.  The courts will have to address whether a “pandemic” comes within that exclusion  

Many policies also provide business interruption coverage if the losses are caused by “civil authority,” where access to the business is prohibited by an act of government.  (For example, after the Boston Marathon bombings, the government shut down businesses near the bomb site.)  Such losses do not require direct physical loss or damage to the business property, but are generally limited in scope to a few weeks.  

·       Is there any chance that insurance will provide coverage even if coverage seems to be excluded by the language of the policy?

The Massachusetts legislature is considering a bill under which insurers would pay business interruption losses from coronavirus up to the policy limit for small businesses.  The insurers would then by reimbursed by the state.  There’s a good summary of the bill here.  

·       What do I do if my insurer denies my business interruption claim?

Don’t give up without consulting with an attorney.  Insurers may reflexively deny claims.  You may have a policy that provides coverage, or a court decision may come down in the future interpreting your policy as providing coverage.  You want to make sure you don’t lose any rights. 

·       What do I do in my insurer says that there is coverage for my business interruption claim?

You should consider hiring a public adjuster to help you make sure you are submitting the full value of your claim.  Public adjusters are non-attorneys who advocate for policyholders on the amount of loss, almost always on a contingency fee.  

·       Upcoming Boston Bar Association webinar

The Insurance and Reinsurance Committee of the Boston Bar Association will be holding a webinar on these issues on Friday April 17, 2020 from noon to 1 PM.  (I am one of the chairs of this committee but the credit for putting the program together goes to my co-chair Sara Perkins Jones as well as to Nathan Cole.)  You do not need to be a member of the BBA to participate in this webinar.