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Law360 (June 24, 2020, 5:46 PM EDT) -- A Michigan chiropractor has hit State Farm Mutual Automobile Insurance Co. with a proposed class action alleging it wrongfully applied a "virus exclusion" to deny revenue loss claims from COVID-19-related state-ordered closures, arguing the exclusion was unrelated to its loss.
Turek Enterprises Inc., doing business as Alcona Chiropractic, told a Michigan federal judge Tuesday that State Farm rejected its coverage claims based on an "utterly wrong" interpretation of the policy's virus exclusion, arguing the exclusion was never written for losses arising from government-ordered pandemic prevention measures.
The Harrisville, Michigan-based chiropractic business said it suspended operations for 2½ months after state-mandated closures issued on March 24. Turek said it never claimed that its property was polluted by COVID-19, but the insurer denied coverage, citing the virus exclusion in the policy.
It argued that virus exclusion was written in 2006 to add to standard property and casualty policies alongside pollution and asbestos contamination exclusions. Turek said insurers presented it with "clear admissions to regulators that the exclusion was meant to apply only for decontamination costs claims," but not for losses from civil authority orders.
"We don't see the virus exclusion as it was conceived and written applying to the shutdown of these businesses," Jason Thompson, an attorney representing Turek, told Law360 on Wednesday. "Businesses that were ordered to shut down by the government were not shut down because they had viruses or they had a viral outbreak."
According to the complaint, the COVID-19 virus was not the direct cause of Turek's property damage since the state did not order closure either to clean up the novel coronavirus or because the property was contaminated by it. On the contrary, it argued, it was ordered to shut down "to ensure the absence of the virus or persons carrying the virus" from its property.
"Virus exclusion is inapplicable to these claims because the existence of the threat of the COVID-19 virus was unrelated to the loss suffered by the state's exercise of police powers," it claimed in the complaint.
Turek alleged that the sole reason for the insurer's denying its claims is because of the "sheer size of the exposure to State Farm." The chiropractor said the insurer issued blanket denials to all policyholders seeking business interruption coverage without individual investigation of their claims.
The complaint cited a statement from the American Property Casualty Insurance Association that while the U.S. property and casualty insurance industry takes in about $6 billion in premiums a month, it is seeing small-business losses at between $255 billion and $431 billion.
"The filing of a lawsuit does not substantiate the allegations within the complaint. We've recently learned about the filing, and it is premature to provide further comment at this time." Matt Smederovac, a State Farm spokesperson, said in an email statement.
Turek is seeking to represent a Michigan state class of all business owners who have been denied coverage by State Farm. It is asking the court to hold that State Farm should not have applied the virus exclusion to reject its claims, and state closure orders trigger revenue loss and civil authority coverages under its "all-risk" business owner policy with the insurer.
The chiropractic business said that its property, including chiropractic equipment, medication, and supplements with expiration dates, has suffered "loss of use" and "loss of value." And such losses are "direct physical damage" because its property cannot be used for business activity.
Additionally, "all conditions for civil authority coverage have been met," since it has been ordered to make physical alterations to its property in order to resume operation to comply with state-imposed requirements to resume business activities, Turek said.
Turek is represented by Ken Neuman, Jennifer Grieco and Steven McKenney of Altior Law PC as well as Andrew Kochanowski, Jason Thompson, and Rob Sickels of Sommers Schwartz PC.
Counsel for State Farm could not be determined.
The case is Turek Enterprises Inc. d/b/a Alcona Chiropractic v. State Farm Mutual Automobile Insurance Company et al., case number 1:20-cv-11655, in the U.S. District Court for the Eastern District of Michigan.
--Editing by John Campbell.
Update: This story has been updated with a comment from State Farm.
For a reprint of this article, please contact reprints@law360.com.
