Scottsdale Insurance Company and parent Nationwide Mutual Insurance Company face a proposed class action in which a New Jersey tanning studio claims the insurers have wrongfully issued blanket denials for COVID-19-related insurance claims.
The 36-page lawsuit alleges the defendants have “used a time of international crisis to blatantly cheat the Plaintiff out of money owed to it” after the business was forced to close due to government-mandated restrictions issued in response to the COVID-19 crisis.
According to the case, the plaintiff business purchased a standard-form all-risk property insurance policy that purported to provide coverage for loss of business income and extra expenses in the event the studio was forced to suspend operations due to a covered risk. The policy also included civil authority coverage in the event an action taken by a civil authority prohibited access to the covered property, the suit adds.
The Point Pleasant, New Jersey tanning studio says it was forced to close in mid-March after a series of executive orders issued by Governor Phil Murphy mandated the closure of all non-essential businesses amid the COVID-19 crisis. Per the case, the plaintiff experienced covered losses under its Scottsdale/Nationwide insurance policy as a result of the executive orders, which prohibited the business from using its property for its intended purpose.
“As a direct consequence of the Closure Orders, which were issued to protect the public safety, since March 15, 2020, Plaintiff and the members of the Class have suffered a significant loss of business income and incurred extra expenses,” the complaint states. “Among other things, the Closure Orders caused a diminishment of functional space and loss of functionality of covered property.”
The lawsuit argues that although the plaintiff’s policy does contain an exclusion for “loss or damage caused by or resulting from any virus, bacterium or other micro-organism that induces or is capable of inducing physical distress, illness or disease,” the exclusion is not applicable in this case given the plaintiff’s losses were caused by government closure orders and not by the presence of the virus itself.
Moreover, the language in the so-called virus exclusion is ambiguous, and does not “unambiguously and necessarily” exclude the plaintiff’s losses, according to the case.
Despite the foregoing, the defendants denied the plaintiff’s claim via letter dated July 7, 2020, reasoning that the business had not suffered a physical loss or damage as a result of being shut down and that the losses were caused by a virus, the suit says.
The plaintiff suspects that Scottsdale and Nationwide have similarly denied other policyholders’ business interruption claims in contravention to the express terms of their insurance policies, as well as guidance issued by the U.S. Small Business Administration and America’s Small Business Development Center advising that business interruption insurance should cover losses sustained as a result of government closure orders.
The suit stresses that such coverage is “critical” to the survival of “thousands of restaurants, retail establishments, and other businesses that have had their business operations suspended or curtailed indefinitely by order of civil authorities.”