Fact or Fiction: Most Lawsuits Against Insurers for Failing to Cover Pandemic Losses Have Been Thrown Out of Court

Believe it or not, this is a fact!

Along with thousands of smaller mom-and-pop businesses, insurers have been sued by larger companies such as:

Century 21, the 60-year-old real estate brokerage, announced it would be closing for good and  blamed its insurer.

Retailer Ralph Lauren sued its insurance company, Factory Mutual, which was one of the few insurers that offered policies that explicitly provided some coverage for losses from pandemics.

Some Las Vegas casinos, like Treasure Island, are also suing insurers for failing to cover pandemic-related losses.

Although most of the cases brought against insurers have been dismissed, most of the cases tossed out so far have had virus-exclusion clauses in the policies.

More recently, Major League Baseball filed a lawsuit against its insurance carriers, claiming that more than a billion dollars in losses from ticket sales, advertising revenue and more should have been covered. The MLB and each of its 30 teams sued AIG, Factory Mutual, and Interstate Fire and Casualty Company for breach of contract.

Image Source: cnn.com

Due to the coronavirus pandemic, MLB was forced to cancel more than 1,500 games — and play the ones that weren’t canceled in empty stadiums – meaning that the huge income stream ordinarily generated by fans at the ballpark, like tickets, parking, concessions and merchandise, fell to nearly $0 this year.

MLB argues these losses have been covered by its extremely expensive “all risk business interruption coverage.” The Complaint alleges:

“The All Risks Policies, for example, specifically insure against physical loss or damage arising from communicable disease caused by virus. The All Risks Policies also include coverage promises for business interruption losses, losses occasioned by government orders, losses occurring when access to or from stadiums becomes difficult or risky, the costs of crisis management, and extra expense payments, among many covered losses.”

In other cases, insurers have argued that the pandemic isn’t causing the kind of direct physical loss that’s required for coverage. That is, the virus droplets themselves do not physical damage stadium structures the way hail might, for example. However, Sherilyn Pastor, president of the American College of Coverage Counsel, said physical loss includes the loss of use of, or access to, a given property — not just physical damage.

Image Source: reuters.com

Nevertheless, some courts are siding with the insurers. In September a federal judge in California concluded a barbershop chain couldn’t show its business suffered a “distinct, demonstrable physical alteration.”

What do you think? Does the coronavirus cause a direct physical loss or damage to the insured property? Should new laws require insurers to pay out pandemic loss claims?

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