Liberty Mutual Sued for Alleged Refusal to Pay All-Risk Commercial Property Insurance Claims Over COVID-19 Losses

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A Wisconsin furniture retailer alleges in a proposed class action that Liberty Mutual Insurance Company has unlawfully denied coverage to all-risk commercial property insurance policyholders who have incurred monetary losses and other damages amid the novel coronavirus pandemic. 

Whereas the plaintiff claims business losses sustained during the COVID-19 outbreak are the result of government orders to suspend operations and therefore covered, Liberty Mutual has denied all-risk commercial policyholders’ claims on the grounds that losses stemming from a “virus, bacterium or other microorganism” do not warrant coverage, according to the 33-page suit.

The lawsuit says many non-essential Wisconsin businesses pay “significant premiums” in order to protect against catastrophic events, including government mandates to suspend or severely limit operations. More specifically, all-risk policies promise to indemnify the policyholder for actual business losses stemming from the involuntary suspension, interruption or curtailment of operations “when public access is prohibited because of direct physical loss or damage to the property, or by a civil authority that restricts or prohibits access to the property,” the case reads. 

According to the complaint, Liberty Mutual and “most insurers” who’ve underwritten all-risk commercial property insurance policies with business interruption coverage have shirked their obligation to pay COVID-19-caused income losses and other expenses incurred by policyholders. 

The case highlights the “Business Income (And Extra Expense) Coverage Form, Commercial Property form” in the plaintiff’s policy as stipulating, among other provisions, Liberty Mutual’s agreement to “pay for the actual loss of Business Income you sustain due to the necessary ‘suspension’ of your ‘operations’ during the ‘period of restoration.’” Moreover, the form details civil authority and business income coverage under which Liberty Mutual purports it will pay for “the actual loss of Business Income” caused by the action of a civil authority that prohibits access to a company’s premises, according to the case. 

The plaintiff alleges that its business interruption insurance claim was denied by Liberty Mutual around April 5 on the grounds that neither the retailer nor any surrounding property had suffered direct physical loss or damage for which coverage was applicable. The case argues, however, that Liberty Mutual’s coverage denial was wrong in that the losses incurred by the plaintiff stemmed directly from Wisconsin’s precautionary measures to slow the spread of COVID-19, and not any definitional exemption for a “virus, bacterium or other microorganism” capable of causing harm. From the complaint:

“As drafter of the Policy, if Liberty Mutual had wished to exclude from coverage as ‘physical loss or damage’ loss of use of property that has not been physically altered, it could have used explicit language stating such a definition of ‘physical loss or damage.’ It did not do so.

Any Virus and Bacteria endorsement does not apply because Plaintiff’s and other Class Members’ losses were not caused by a ‘virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.’ Rather, the efficient proximate cause of Plaintiff’s, and other Class Members’ losses, were precautionary measures taken by the State of Wisconsin and other governmental authorities to prevent the spread of COVID-19 in the future, not because coronavirus was found in or on Plaintiff’s insured property.”

The lawsuit looks to cover:

“All entities who have entered into standard all-risk commercial property insurance policies with Liberty Mutual, where such policies provide for business income loss and extra expense coverage and do not exclude coverage for pandemics, and who have suffered losses due to measures put in place by civil authorities’ stay-at-home or shelter-in-place orders since March 15, 2020.”

The suit also looks to certify a sub-class consisting of Wisconsin all-risk commercial property insurance policyholders who fit the same criteria.

ClassAction.org’s coverage of COVID-19 litigation can be found here and over on our Newswire. 

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