Farmers Insurance denies business interruption claim the same day it was filed, faces lawsuit

Lawsuit alleges the insurer is summarily denying any claim for loss of business income by small businesses to avoid litigation

Farmers Insurance denies business interruption claim the same day it was filed, faces lawsuit

Insurance News

By Lyle Adriano

Farmers Insurance is facing a class action lawsuit filed in Los Angeles Superior Court over a business interruption claim the company denied on the same day it was filed.

A franchisee of The Great Frame Up – a national chain of framing stores – based in Northridge, CA filed the lawsuit after its business interruption claim was denied over the phone.

The class action alleges that Farmers Insurance is summarily denying any claims for loss of business income made by small businesses as a strategy – a strategy to dissuade those small businesses from pursuing litigation. The lawsuit also alleges that this is not the first time Farmers has employed the tactic, saying that the insurer tried to pull the same thing after the 1994 Northridge earthquake.

“According to California insurance law, insureds are entitled to a fair and thorough investigation of claims, but Farmers chose to deny this completely legitimate claim sight unseen,” said Arias Sanguinetti Wang & Torrijos LLP managing partner Mike Arias in a statement.

The franchisee was one of the many “non-essential” businesses ordered to close on March 19 by the state government, in response to the COVID-19 pandemic’s spread. Since the lockdown, the farming store has not made a single sale.

It had purchased a uniform business owners policy, which it alleges should cover the government lockdown. The franchisee also noted that its policy has an “additional coverages” clause that covers business income should a business sustain losses “due to the necessary suspension of your ‘operations’ during ‘period of restoration.’”

The franchisee reported a claim to Farmers Insurance on April 08, 2020, over the phone, which was immediately denied. Farmers also sent a written denial to the store the next day. When the franchisee hired an attorney to determine why the claim was denied without Farmers assessing and investigating the claim, the insurer refused to cooperate and did not provide any justification for the denial, it is alleged.

A statement from Arias Sanguinetti Wang & Torrijos LLP said that the lawsuit seeks to represent a class of other retail and service business in California that – just like the plaintiff – do business in-person with customer but were not considered “essential” during the statewide lockdown order.

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