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Thursday, 20 August 2020 17:01

Prepping For a Surge of COVID-19 Bad-Faith Issues

Written by Lynn Allen, PropertyCasualty360
Businesses are getting more aggressive in their attempts to minimize their financial losses by filing class action lawsuits. Businesses are getting more aggressive in their attempts to minimize their financial losses by filing class action lawsuits. Shutterstock

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In March, the U.S. came to a screeching halt. Schools closed, businesses shut down and the national economy saw its largest decline in more than a decade.

The wave of insurance coverage litigation over COVID-19 losses was inevitable. And as policyholders seek to recoup business-related losses, business interruption claims are becoming the new normal. With insurance companies denying such claims for lack of physical damage or loss to property, bad faith lawsuits are soaring and businesses are suing their insurance companies in increasing numbers.

 

As the pandemic progresses and closures linger, businesses are getting more aggressive in their attempts to minimize financial loss by filing class action and multi-district suits against their insurers. Attorneys are finding creative ways to extend current case law and develop new arguments for coverage. A few examples include:

 

  • In a federal suit filed in Chicago, Big Onion Tavern Group---a group of Chicago-based restaurants and movie theaters---sued its insurer seeking coverage for lost revenue due to forced closures following Illinois Gov. J.B. Pritzker’s COVID-19 shutdown order. The plaintiffs also sought damages for statutory bad faith.
  • Seven shuttered San Antonio, TX, barbershops filed claims with their insurer, State Farm, asking them to cover loss of business income. The claims were denied, so the shops responded by suing State Farm for breach of contract for wrongfully denying coverage and other claims.
  • Mudpie Inc., a San Francisco-based children’s clothing boutique, filed a class-action lawsuit on behalf of California-based retail stores against Travelers, alleging the small businesses were wrongfully denied coverage for losses resulting from government-mandated public health shutdowns related to COVID-19---despite having paid premiums for business interruption policies.

 

These lawsuits are just the beginning. In light of this unprecedented pandemic, insurers can expect a historic increase in business interruption and civil authority claims. As a result, insurance companies need to anticipate and prepare for such claims.


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