A Torrance, California dance studio and event space alleges Farmers Insurance Company and a number of affiliates have wrongfully denied commercial property policyholders’ claims for coverage of business losses incurred during the COVID-19 pandemic.
Despite collecting billions in premiums from the plaintiff and similarly situated businesses, the defendants—Farmers Insurance Company, Farmers Group, Farmers Insurance Exchange, Fire Insurance Exchange and Truck Insurance Exchange—have refused to pay legitimate business interruption claims filed in light of the coronavirus crisis, the 29-page complaint alleges.
Though the plaintiff and similarly situated businesses hold “all-risk” standard commercial property insurance policies with Farmers that purport to provide business interruption coverage, the defendants have allegedly shirked their responsibility to pay for covered losses arising from mid-March civil authority orders to halt non-essential entities’ business operations. As the lawsuit tells it, Farmers has taken to denying coverage barely a day after a claim has been filed as “a uniform course of action” against policyholders nationwide.
“Farmers does not intend to cover losses caused by the COVID-19 pandemic as part of business interruption coverage,” the case alleges.
Following California Governor Gavin Newsom’s declaration of a state of emergency on March 4, residents were ordered to cancel large, non-essential gatherings on March 12, the lawsuit says. Days later, following additional executive orders, the suit continues, Los Angeles County issued on March 16 the “Safer at Home Order for Control of COVID-19,” which temporarily shuttered all non-essential businesses and mandated social distancing measures. The LA County order banned indoor gatherings of at least 50 people and required the immediate closure of businesses such as the plaintiff’s dance studio, the suit stresses.
On March 19, Los Angeles Mayor Eric Garcetti went a step further, issuing the “Safer at Home” order under the reasoning that “COVID-19 can spread easily from person to person and it is physically causing property loss or damage due to its tendency to attach to surfaces for prolonged periods of time,” the complaint says. Moreover, Torrance, where the plaintiff’s business is located, issued a number of its own executive orders between mid-March and May 29 restricting non-essential businesses from operating and prohibiting large gatherings while mandating social distancing and the use of face masks, per the complaint.
As the lawsuit tells it, the plaintiff’s all-risk Farmers insurance policy includes business income, extended business income, civil authority, and extra expense coverage. Though the policy contains a “mold and microorganism exclusion,” such “does not exclude coverage for Plaintiff’s business income and extra expense losses” given the losses were caused not by mold or microorganism but by civil authority orders aimed at preventing the spread of COVID-19, the lawsuit argues.
“Specifically, Plaintiff is unable to utilize its business premises for normal operations because COVID-19 Civil Authority Orders were issued to prevent the potential spread of COVID-19 in the future, not because Coronavirus was found on or in the vicinity of Plaintiff’s covered premises,” the complaint specifies.
Further, the lawsuit claims that while the plaintiff’s policy also excluded coverage for losses due to virus or bacteria, the exclusion does not apply given the business was unable to operate as a result of civil authority orders.
The plaintiff alleges that its claim was filed with Farmers on May 4 and formally denied a day later without any inspection or review of the studio’s physical location. Farmers’ rejection of the plaintiff’s loss claim is “unfounded because, as explained, the loss of access to the Plaintiff’s covered premises is caused by COVID-19 Civil Authority Orders” issued to prevent the spread of the disease, not because the virus was found at the covered property.
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