By Daphne Zhang

Law360 (May 20, 2020, 8:10 PM EDT) -- Magna Legal Services LLC said it will drop a suit against Hartford Fire Insurance Co. alleging it wrongfully denied coverage for business losses because of state-mandated closures amid the COVID-19 pandemic.

The legal service firm told Law360 on Wednesday that after careful consideration, it decided to withdraw its complaint against Hartford as well as an insurance broker and its employee.

"We decided it was not the best course of action for us to take at this time," said Peter Hecht, founding partner and vice president of sales for Magna. "Now more than ever, we need to work together to get through this period of uncertainty," he added referring to the pandemic.

Hecht said Magna will keep focusing on serving the company's clients, noting that the company "has been a trusted partner of the insurance industry for 13 years" by providing litigation support to insurance companies.

"We will continue to do whatever it takes to maintain business and litigation continuity for our clients, and alleviate as much of their stress and uncertainty as we can," he said.

The legal service company filed a complaint against Hartford on May 13 alleging that the insurer violated business insurance policy terms by "arbitrarily" refusing to cover its revenue loss on April 27. Hartford said that business income loss from the pandemic is excluded in the policy, according to the suit.

Magna claimed in the complaint that it's experienced more than $50,000 in damages since the government-ordered shutdowns, and that its all-risk policy with Hartford should cover all physical loss and damage unless specifically excluded.

In the suit, the legal service company said it had a "reasonable expectation" that its Hartford policy would cover a civil authority closure order for the evolving COVID-19 when it took effect March 7, a day before Pennsylvania Gov. Tom Wolf issued a state-wide emergency.

Steven Davis, a partner at Stradley Ronon Stevens & Young LLP representing insurance companies and brokers, said it is unlikely that a potential insured will get coverage when they buy a policy in the middle of a pandemic.

"If you know there's a loss coming, you generally can't buy insurance for that, whether people understood what their business income loss would be as a result of this in early March or late February," he said.

Headquartered in Philadelphia, Magna ceased business operations in their offices across the country on March 16 following the state-mandated closures. The company said its business is heavily dependent on law firms, corporations and government agencies across the country whose operations have also been interrupted by civil authority closure orders. Magna provides court reporting, jury consulting and graphic design for trials, law firms, corporations and government agencies.

Magna said in a statement it will continue to use Hartford for liability coverage and life insurance.

Davis noted that some larger policyholders may be hesitant to file suit over business interruption coverage for fear of jeopardizing their other insurance coverage with the carrier. The situation is much simpler for a small business like a restaurant, whose insurance policy might be their only lifeline. 

But Davis added he does not foresee many business insurance interruption lawsuits being withdrawn because policyholders' attorneys are actively pushing for multidistrict litigation proceedings.

Hartford did not immediately reply to request for comment. Counsel for Magna was not available to comment on Wednesday.

Magna is represented by Stewart L. Cohen, James P. Goslee, Robert L, Pratter and Eric S. Pasternack of Cohen Placitella & Roth PC.

Counsel information for Hartford was not available.

The case is Magna v. Hartford Fire Insurance Co. et al., case number 200500735, in the Court of Common Pleas, Philadelphia County.

--Editing by Amy Rowe.

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