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Law360 (May 11, 2020, 6:40 PM EDT) -- A New York day care company has sued Utica National Insurance Group, asking a New York federal judge to rule that its business interruption policy should cover losses from state-mandated closures caused by COVID-19.
Slate Hill Daycare Center Inc. told a New York federal judge on Thursday that Utica recently said it is planning to deny the center's COVID-19-related claim of property and business losses for the two day care centers it operates in New York state.
The childcare company said the insurer sent a uniform letter to all policyholders seeking coverage of damages from government-ordered closures, explaining that they don't have a claim under their business interruption policies and discouraging them from submitting such claims. Slate Hill is seeking to represent all childcare centers in the country that lost income due to civil authority orders in response to the COVID-19 pandemic, arguing that their all-risk policies should cover all damages unless specifically excluded, according to the complaint.
"Because of the shutdown, plaintiff and class members only provide day care to a de-minimis number of customers who work in essential employment," Slate Hill said in the suit, adding that childcare centers around the country have been incurring significant business income losses.
Utica asserted in the letter that all COVID-19-related losses are subject to the policy's virus exclusion terms. Its policies do not cover business interruption closures unless there is physical damage, and civil authority closures have not caused physical damage to the properties, according to the complaint.
"The policy's virus or bacteria exclusion does not apply to the closure of plaintiffs' businesses as a result of an order issued by a civil authority due to the COVID-19 pandemic," Slate Hill argued in the suit.
The day care company claimed that its policy "explicitly covers business income loss when access to the insured's properties is specifically prohibited by civil authority orders." Scientists have acknowledged that the novel virus can linger on a property's surface for days and create physical damage, it added.
Slate Hill said its business losses started when New York Gov. Andrew Cuomo declared a statewide "Disaster Emergency" on March 7, and worsened when the state required all businesses to cease "non-essential operations" on March 20.
The childcare company also cited a statement from President Donald Trump as a sign of potential government support for business interruption policyholders to get coverage during the pandemic in the suit. Trump said at an April 10 press conference that many policyholders have been paying premiums for years but are not receiving coverage while their businesses are interrupted during the COVID-19 crisis.
"It is time for insurance companies to step up, do the right thing and pay these claims," Richard Golomb, a partner with Golomb & Honik PC representing Slate Hill, told Law360.
Golomb said Slate Hill is one of many small businesses that his firm represents who have been denied business interruption claims "despite dutifully paying their premiums for years," and he sees strong potential for multidistrict litigation for this kind of suit.
"There's going to be dozens, if not hundreds or thousands, of cases against some of the same carriers," Golomb said. "Because you probably have 100 different insurance companies, and there may be 15 of them that have a larger percentage of the market share than a lot of the others."
An MDL can help handle the suits more efficiently, he added, as his firm filed a petition with the U.S. Judicial Panel on Multidistrict Litigation on behalf of two restaurants seeking coordination of all of related cases before a Pennsylvania federal judge in April.
Slate Hill's lawsuit joins a slew of other suits by businesses against their insurers seeking coverage for business interruption during the shutdown, with dozens of such cases and class actions being filed as the pandemic goes on.
Utica did not return a message and calls seeking comment.
Slate Hill is represented by Arnold Levin of Levin Sedran & Berman LLP, Richard Golomb of Golomb & Honik PC, and Daniel "Dee" Miles of Beasley Allen Crow Methvin Portis & Miles PC.
Counsel information for Utica could not be determined Monday.
The case is Slate Hill Daycare Center Inc. et al. v. Utica National Insurance Group, case number 1:20-cv-03565, in the U.S. District Court for the Southern District of New York.
--Editing by Adam LoBelia.
For a reprint of this article, please contact reprints@law360.com.
