Shoe Co. Sues Hartford Over Coronavirus Closure Coverage

By Jeff Sistrunk
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Law360 (April 15, 2020, 8:05 PM EDT) -- Shoe designer Marc Fisher Footwear LLC and a slew of associated companies have sued a unit of The Hartford in California state court, alleging the insurer has wrongfully failed to cover tens of millions of dollars in losses they have suffered since coronavirus-related closures brought their business to a grinding halt.

In a complaint filed in Santa Barbara Superior Court on Monday, Fisher and 22 related companies alleged that Hartford Fire Insurance Co. has ignored their pleas for coverage of lost income, payroll expenses and other losses under a multipronged business insurance policy that offers up to about $40.6 million in benefits.

Fisher said that government-mandated closures tied to the COVID-19 pandemic have tanked its plans to ship and sell its spring footwear lines through major retailers and left it unable to pay $107 million due to third-party factories for past and in-progress shoe orders.

"Without expeditious policy payments from [Hartford], plaintiffs will be unable to continue to fund the business through the summer, when best estimates anticipate the orders of civil authority will be lifted and plaintiffs' major retail customers will place orders for the fall season,” Fisher’s attorneys wrote.

Fisher, which was founded in 2005 and has operations in 12 states, designs and sells a variety of men’s, women’s and children’s shoes, including its namesake Marc Fisher-branded shoes and licensed Guess, Tommy Hilfiger and Calvin Klein footwear, among others.

According to the complaint, Fisher sells its merchandise through a number of national department stores and retailers, including Macy’s, Nordstrom and DSW.
But since federal, state and local mandates began shutting down nonessential businesses beginning in late February, Fisher’s retail customers have either canceled or indefinitely stopped or delayed payment on about $120 million worth of spring product orders, according to the suit.

Moreover, Fisher said that it remains obligated to pay $55 million to third-party factories for completed production orders, plus another $52 million for in-progress orders, the complaint indicated. However, those sums vastly outweigh the $20 million that Fisher currently has on hand, and it is unable to secure any further financing from lenders, according to the suit.

On April 1, Fisher reached out to Hartford to request payment under the policy, which includes coverage for lost income and certain other expenses due to an interruption in business operations, including closures attributable to “civil authority" orders. By the time that Fisher filed its complaint, it said that Hartford has not confirmed whether or not it will provide any coverage under the policy.

However, Fisher argued that Hartford has effectively disclaimed coverage for losses like those suffered by the shoe company because it stated publicly on its website that business interruption insurance may be “unavailable or limited” in many cases because “viruses generally do not cause physical loss or damage to property as required by the policy.”

Fisher contended that Hartford’s position is faulty because the civil authority prong of its policy doesn’t require direct physical loss to property and, for the other prongs that do contain such a requirement, it is “satisfied by the loss of access to and loss of use of property.”

In addition, Fisher argued that Hartford cannot invoke an exclusion in its policy for virus-related losses because that provision conflicts with another policy clause that explicitly provides coverage for lost income and other expenses due to a business interruption caused by property damage attributable to “fungus, wet rot, dry rot, bacteria or virus.”

Fisher is asserting claims against Hartford for breach of contract, breach of the duty of good faith and fair dealing and a violation of California’s unfair competition law.

Counsel for Fisher declined to comment on Wednesday, while a Hartford representative did not immediately respond to a request for comment. 

The plaintiffs are represented by Jerold Oshinsky, Kirsten C. Jackson, Tracy B. Rane and Melissa H. Dejoie of Kasowitz Benson Torres LLP and L. Donald Boden of Griffith & Thornburgh LLP.

Counsel information for Hartford was not immediately available.

The case is Moda LLC et al. v. Hartford Fire Insurance Co., case number 20CV1655, in the Superior Court of the State of California, for the County of Santa Barbara.

--Editing by John Campbell.

For a reprint of this article, please contact reprints@law360.com.

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