Travelers wins business interruption lawsuit case

The question of actual physical loss during pandemic shutdowns remains the focal point of BI lawsuits

Travelers wins business interruption lawsuit case

Insurance News

By Lyle Adriano

A federal judge in California has ruled that Travelers Casualty Insurance Company of America is not obligated to cover the pandemic-related business losses of a San Francisco-based retailer.

In May, children’s clothing retailer Mudpie filed a proposed class action lawsuit against its insurer Travelers. In its complaint, Mudpie alleged that it and many other retailers across California were forced to close down due to the state’s shutdown orders, yet Travelers and other insurance companies have been categorically denying business interruption coverage.

The lawsuit claimed that the denials were based on “crabbed” interpretation of the policies, as well as broad exclusions that were made with little or no investigation to back them.

But US District Judge Jon S. Tigar dismissed Mudpie’s lawsuit this week. The judge concluded that because the boutique has not alleged that COVID-19 is present or had directly contributed to its business losses, no physical force that would have triggered insurance coverage had occurred.

The judge further explained that Mudpie’s complaint is based solely on allegations that the government shutdown orders caused it to lose business – an argument that Tigar said was not enough. According to him, without some intervening physical force to prompt the shutdown orders, or Mudpie’s closure – and without permanent loss of property involved – the boutique’s claims for breach of contract and breach of covenant fail.

While Tigar ruled that the shutdown orders did not cause any physical loss or damage, he rejected Travelers’ argument that “physical loss or damage” only relates to physical alteration of the property. The judge also allowed Mudpie to amend its complaint due to the constantly developing area of law over business interruption insurance related to COVID-19, Law360 reported.

Although there have been several cases where the courts sided with the plaintiffs, Bloomberg reported that most of the BI insurance cases adjudicated thus far have been ruled in favor of insurers.

Just last week, a Florida federal judge dismissed a dentist’s lawsuit against insurer Allied Insurance Company of America over business losses resulting from state-mandated business closures.

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