Judges prevent Covid insurance raid
The U.S. Sixth Court of Appeals recently ruled that Santosuossos, an Italian restaurant in Medina, Ohio, was not entitled to payment of a claim under its business interruption insurance after that a state ordinance prohibited in-person meals. These policies cover loss of income when a business is closed due to physical loss or damage to property.
The court found that although Santosuossos had lost the ability to use his property as a restaurant in person, the governor’s closure orders had not physically altered the restaurant’s structure. There was nothing to repair or rebuild that would have prevented the owners from opening their dining room. Therefore, this basic requirement for coverage has not been met.
In Santos Italian Café LLC v. Acuity Insurance Co., a unanimous panel of three judges recognized the challenges that pandemic restrictions placed on restaurants and bars. But because of “the harsh reality of insurance,” the hands of the court were tied. Insurance is a contract, not a general safety net for all hazards.
Two other federal courts of appeal have looked into the matter. Both agreed with the insurers for the same reason.
According to the Covid Coverage Litigation Tracker at the University of Pennsylvania School of Law, the pandemic has prompted more than 2,000 lawsuits from businesses large and small seeking payment for business interruption claims . Of 461 federal trial court decisions, 93% were in favor of insurers. Companies fared better in state courts, 28% of the time. But that only means that their lawsuits were not subject to immediate dismissal; they could lose at a later stage.
The fate of companies affected by the pandemic has not escaped the notice of many judges. When the bad news is delivered, expressions of sympathy abound. In Kamakura LLC v Greater New York Mutual Insurance Co.Judge F. Dennis Saylor IV observed that the pandemic is the kind of generalized disaster for which “insurance coverage should be routinely available”. But the Bay State federal lawyer ruled against the plaintiff because he could not “avoid the language of politics.”
If the language is so clear, why have so many lawsuits been filed? History teaches that when faced with a widespread social problem, those who seek a solution will compete for capital with insurance companies, even if they do not deserve an invitation.
And for good reason. Reckless interpretations of the language of policies imposed massive obligations on insurers for which no cover was provided. Injuries from asbestos exposure, cleaning up toxic waste sites and other widespread calamities have left insurance companies on the hook. Taking a page from this playbook was definitely on the minds of the lawyers here.
But so far, lawyers for the plaintiffs have not pulled a rabbit out of a hat. The courts understood what the panel in Santos Italian Cafe expressly stated: “Efforts to push coverage beyond its terms”, if successful, create “an insurance product that covers something that no one has paid for and, worse yet, risks leaving insufficient funds. to pay for the risks that the insured have paid ”.
Mr. Maniloff is a lawyer with White & Williams LLP in Philadelphia. Its clients are insurance companies.
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Published in the print edition of September 30, 2021.