By Jessica Corso Originally published July 16, 2020 on San Antonio Business Journal
The ordered closure of businesses like restaurants, bars and hair salons has some business owners turning to the courts for insurance coverage. (Photo by Gabe Hernandez | SABJ)
At least six San Antonio-area businesses have sued their insurers, saying they were wrongfully denied coverage for losses incurred when the government forced them to close.
Restaurants, barbershops, tailors and car washes are among the businesses suing to recoup money they lost after Bexar County ordered many shops closed in March to slow the spread of Covid-19. Shannon Loyd, the San Antonio lawyer who filed the six lawsuits, said many of her clients will never recover from that period of closure.
“So many businesses have lost so much,” Loyd told the Business Journal. “Lots of people have lost jobs. Some of my clients, sadly, are going to be closing their doors forever in next month or two.”
The plaintiffs say they were denied coverage under their business interruption policies — often before an investigation into their claims began. Loyd said it has become standard for insurance companies she has dealt with to write off business interruption claims as a matter of policy.
“I have a client, a dental office, that has coverage for communicable diseases and was still denied a claim,” she said. “So we just think they’re going to deny claims across the board. … It’s jaw-dropping that they denied that claim.”
Loyd’s dental client is in Dallas. She has cases in Houston, as well, and is preparing to file others in the state. Though she’s currently the only local lawyer with a business interruption case on San Antonio’s federal docket, Loyd’s arguments are not unique to Texas.
Business interruption insurance’s applicability to a pandemic has never been tested in the courts, and insurance lawyers across the country began filing lawsuits as their local governments forced clients to shut their doors.
Some policies exclude coverage for viruses, an exemption that was often written into the policies after SARS made its way from China to the U.S. beginning in late 2002. Others, however, don’t include that specific exemption — possibly leaving those insurers more vulnerable to interruption insurance claims.
Still, the only court in the nation to have ruled so far favored the insurer. A Michigan state judge ruled last week that a restaurant owner didn’t suffer the physical damage to his property necessary to succeed in his claim. Insurers will likely lean on the lack of physical damage as a reason for courts to deny coverage to policyholders.
The American Property Casualty Insurance Association, the primary trade group for business insurers, said that forcing insurers to cover losses from such business closures would sink the industry even further as it already struggles with an increase in event cancellation and life insurance policy claims.
In opposing a proposed California law that would mandate business interruption insurance be triggered by Covid-19, APCIA President David Sampson said small business losses in that state are estimated at $10 billion to $40 billion per month due to the economic shutdown.
Loyd said any coverage won through the courts will likely be limited to four to six weeks of lost income. Besides, she said, the insurance companies wrote the policies for which her clients pay anywhere from $2,000 to hundreds of thousands of dollars a year.
“We’re going to keep [filing claims] until we find that the courts are not going to go in the policyholders’ favor,” she said.
