The battle against business owners and insurance companies over denied business interruption (BI) insurance claims has entered a new stage, as smaller businesses face insolvency and much larger companies prepare to sue their insurers.
Over 1,000 companies have sued over denied business interruption claims related to the COVID-19 pandemic, Bloomberg reported. And of the handful of BI insurance cases adjudicated, nearly all have been in favor of the insurers, said insurance company lawyer Ronald L. Kammer. The carriers have persuaded the judges to throw out the cases by making the court agree that a property insurance policy cannot be invoked if there is no property damage.
That defense could be disastrous for some companies who face losses much larger than anticipated – such as the case with fashion store chain Century 21. The store had filed BI claims with its insurers, only to be turned down. Unable to receive the $175 million the company claims it is due, Century 21 filed for bankruptcy.
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Subsequently, Century 21 has sued its insurers – which include units of Allianz SE, Great American Fidelity Insurance, and Liberty Mutual – and the fashion retailer is seeking to move the suit into bankruptcy court.
Former federal judge Judith K. Fitzgerald, who has experience presiding over bankruptcy cases, fears that Century 21 will not be the last company to fall into insolvency due to its pandemic-related losses.
“I wouldn’t be surprised if more companies start filing bankruptcies,” said Fitzgerald, who currently serves as a shareholder for law firm Tucker Arensberg.
But even as businesses face the threat of insolvency, Kammer says that insurers will continue to defend themselves from lawsuits by maintaining that the virus does not constitute physical property.
“Do I believe additional cases will be filed? Yes. Do I believe the outcomes will be any different? No, because the policy language is the same. They still have to prove a direct physical loss,” he told Bloomberg. “And I am not aware of any admissible evidence that would allow, at the end of the day, for a business to prove it suffered a physical change.”
That stance on BI claims could soon be put to the test, as bigger businesses begin to file their own lawsuits – and these businesses have the resources to engage in long, drawn-out legal battles.
According to Walter J. Andrews, a lawyer representing retail giant Ralph Lauren Corp. in its $700 million lawsuit, earlier BI lawsuits were from smaller companies that could not afford to take their insurers to court for too long.
“Their business model has proven to them that saying ‘no’ earns them more money than saying ‘yes,’” Andrews told Bloomberg.