A proposed class action argues State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company wrongfully failed to pay a chiropractor’s business interruption claim for damages stemming from the COVID-19 crisis.
The plaintiff, a Harrisville, Michigan chiropractic practice, purchased from State Farm a standard-form, “all-risk” property insurance policy that purported to provide coverage in the event a risk caused “direct physical loss of” or “damage to Covered Property,” the lawsuit says. Like many standard-form small business policies, the plaintiff’s policy included loss of income, extended loss of income, extra expense, and civil authority coverage, which promised to pay for the business’s lost income and other expenses in the event of a covered business “suspension,” the case relays.
Executive orders issued in late March in response to the coronavirus pandemic mandated that the plaintiff close its practice, which the lawsuit argues compromised the business’s right to “full and unencumbered use” of its property. Further, a May amendment to Michigan’s closure order required the plaintiff to make structural alterations to the property as a condition of reopening, per the case. In light of the foregoing, the lawsuit argues that the plaintiff suffered direct physical loss of and damage to the covered property as the terms are defined in its insurance policy and case law.
Despite submitting timely notice of its losses and expenses to State Farm, the plaintiff’s claim was denied without any individual investigation, according to the case.
More broadly, the complaint says that as states began issuing shutdown orders, the insurance industry commenced a public campaign centered on a so-called “virus exclusion” that companies like the defendants claimed precluded coverage “against the Pandemic.” The case surmises the “virus exclusion” symbolizes the insurance industry’s collective stance against business looking to recover pandemic-related damages.
“Seizing on this relatively new addition to the list of exclusions in a standard-form property policy, the industry loudly proclaimed not to even bother trying to file a claim: if the closure occurred during Covid-19, it’s not covered,” the complaint reads.
The lawsuit argues, however, that the insurance industry’s interpretation of the exclusion is “utterly wrong” in that the cause of the property damage at issue was not the coronavirus. Instead, the state’s mandate was issued in order to prevent the virus, or persons carrying the virus, from entering the plaintiff’s property, the suit says. According to the case, “there is no evidence at all that the virus did enter Plaintiff’s property or that it had to be de-contaminated.”
The lawsuit goes on to cite what it calls companies’ “clear admissions to insurance regulators” that the virus exclusion was meant to apply only in claims for de-contamination costs and therefore cannot be enforced against the plaintiff. According to the case, State Farm, through its agents, misrepresented to insurance regulators in 2006 the purpose of the virus exclusion and that it would not narrow coverage. State regulators approved the addition of the exclusion based on the defendants’ representations that the provision would only apply to contamination removal costs, the suit explains.
The complaint alleges that State Farm’s denial of the plaintiff’s claim is “contrary to the plain language of the Policy” and was only issued to avoid the scale of potential losses for a risk the insurer “should have anticipated.” According to the case, the financial burden of State Farm’s decisions should not fall on the shoulders of policyholders:
“The blanket denial of claims is guided not by policy interpretation or its earlier representations to regulators, but by the sheer size of the exposure to State Farm. State Farm offered business interruption insurance to its policyholders in full anticipation of the risks it is now facing. Insofar as it finds itself with potentially calamitous under-reserve and capitalization issues as a result of too many claims it failed to anticipate, the risk of under-pricing its business interruption insurance is not and should not be on State Farm’s policyholders.”