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Public Fear: The Newest COVID-19 Coverage?

By Lee S. Siegel, Esq.

Not all complaints are created equal. This is one of those stories.

As COVID-19 Business Interruption National Coordinating Counsel for several insurance companies, Hurwitz & Fine identified and tracked 56 business income complaints filed to date. See Survey.

There are many similarities among the complaints. For example, almost all allege a partial or total suspension of operations as a result of an order of civil authority. Some point out the lack of a virus exclusion and others attempt to plead around the virus exclusion. The trickier pleading maneuver concerns rendering the COVID-19 virus applicable to the physical damage or loss of use of property requirement found in most policies. A plurality of policy holder attorneys plead the ‘fomite theory’–under which the virus causes the formation of objects, known as fomites, that adhere (at least temporarily) to surfaces, causing damage. Many complaints cite from the closure orders themselves to establish property damage. For example, the French Laundry complaint alleges that, “The Order specifically states that it is being issued on evidence of physical damage to property…in the immediate area of the Insured Properties.”

But complaint number 57 is different, very different. Welcome to “Public Fear” coverage.

Our story begins in Guilford County, North Carolina. The county seat is the bucolic city of Greensboro, set among the rolling hills of the Piedmont Mountains. Greensboro was again set to host the Atlantic Coast Conference and portions of the NCAA men’s basketball tournament (i.e. its slice of March MadnessTM). In complaint number 57, a group of bars and restaurants sued a group of insurance companies for business interruption coverage as a result of lost revenues from the cancelled basketball games. (Natty Greene’s Brewing Company, LLC et. al v. Traveler’s Casualty Insurance Company, et al., 20 CVS 4461). “Greensboro restaurants and bars were poised to seize on the positive economic impact of the” tournaments, the complaint alleges.

The Natty Greene complaint makes much of the pandemic fear gripping the nation in March 2020. The WHO for years warned that an airborne virus would cause a worldwide scare (¶5); the fear that COVID-19 would spread across the country was great (¶6); fear of the virus caused the cancellation of the tournaments (¶¶14, 15); “[p]ublic fear…and closures …because of the virus have caused Plaintiffs to incur significant financial losses and damages.” (¶18); business owners continue to lose revenue “as a result of the public fear” (¶19).

Despite all this fear-inducing loss, Natty Greene alleges that the defendant insurers—Travelers, The Hartford, Utica National, Frankenmuth, and State Auto Financial—denied nearly every claim for “various reasons.” The plaintiffs, it goes without saying, all faithfully paid their premiums for lost business revenues, but they were abandoned by their insurers in their critical time of need.

What kind of coverage do these five different insurance companies sell? Well, of course, it was “coverage for the plaintiff restaurants/premises for loss of business revenues and the physical loss of that money.” (¶21). And, how will the policyholders establish physical loss of that money; will they argue the fomite theory, contamination, or maybe something novel? Yes, novel it is; in fact, it doesn’t get more novel (and circular) than this: “The income not arriving was as physical as it can get….” the complaint asserts (Id.)

Forget for a moment that revenue is intangible property that does not exist in the physical universe (and, no, we are not ignoring actual paper money that could be stolen or damaged by a covered cause of loss, such as a fire). Let’s also put aside that patrons often do not pay with paper money. So, the plaintiffs suffered a physical loss of money that they never had in the first place? Let’s double check, because that doesn’t sound quite right. [Checking….] Yes, that’s the argument. “It is hard to imagine that the loss of business revenues can be anything but ‘direct’ and ‘physical.’ To be sure, money that was previously arriving is now not physically arriving.” (¶25). Indeed, the plaintiffs doubled downed. No need to establish a direct physical loss to the property of others, causing a suspension of operations due to an order of civil authority, when there is a direct and physical loss of future money. If anyone needs to stay after class, we’ll attempt to chart this out on the white board.

But back to that pesky virus exclusion that some of the defendants (which ones?) put onto some of the plaintiffs’ policies (which ones?). It’s a pleading dilemma. Even for the most experienced of counsel this has been tricky. Well, leave it to our Natty Greene plaintiffs to have solved the riddle. The plaintiffs’ business income loss was not caused by or resulting from the virus, so the virus exclusion cannot defeat coverage. As Carl Denham famously said, “Oh, no, it wasn't the airplanes. It was beauty killed the beast.” Here, the Natty Greene plaintiffs say, ‘it wasn’t the virus. It was fear killed the revenues.’ To quote the complaint exactly: “None [of the policies] exclude coverage for damages caused by public fear and commotion and/or governmental action implemented in an effort to prevent the arrival of the virus or to mitigate the spread of the virus as opposed to damages caused by the virus itself.” (¶23). Public fear as a covered cause of loss.

The Natty Greene complaint is a seriously and perhaps comically flawed pleading. Among its problems are joinder of unrelated defendants, joinder of unrelated and not similarly situated plaintiffs, a lack of commonality of legal issues (e.g. the complaint alleges that some policies have virus exclusions and some do not; some even have different definitions), lack of commonality of damages, lack of specificity, no allegation of a particular contractual relationship (from a reading of the complaint no one can tell which plaintiff is suing which defendant), even a simple plain statement of the claim showing that the pleader is entitled to relief is missing. Those are just the procedural maladies. As plead, the plaintiffs seemingly ignore the likely insurance contract language in favor of a construct that mostly avoids the contract terms and conditions that will make these COVID-19 business interruption claims a difficult row for policyholders to hoe.

But surely the most egregious failing of the pleading is the plaintiffs’ attempt to establish “public fear” as a covered cause of loss. While the only coverage we may have to fear is fear itself, we don’t think that the carriers have much to fear when it comes time to move to dismiss complaint number 57.

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