By Nathan Hale

Law360 (May 1, 2020, 9:35 PM EDT) -- Businesses seeking coverage for interruptions caused by the COVID-19 pandemic should check their policies carefully, as there could be paths to recovery despite what may be a concerted campaign by insurers to indicate the opposite, lawyers say.

While some policies do include exclusions that will bar such claims, some industry lawyers believe there has been a strategic effort by insurers to discourage claims and create a "drum beat" in the press that there will be no coverage for shuttered businesses.

"I think there was an attempt to dissuade the public from filing these claims and to shape the public opinion that this was not property damage," said Steven C. Marks, managing partner at Miami-based Podhurst Orseck PA, who has filed two recent proposed class actions challenging insurers' denials. "But eventually the public catches on. When you look more closely, you can see more clearly which policies have coverage."

Insurers have strongly rebutted these assertions and denied any organized effort, saying it is some on the plaintiffs' side who are waging a public campaign.

In a presentation Thursday, Mark Nation, an insurance specialist with plaintiffs firm Morgan & Morgan PA, said a frequent insurance company tactic is to conflate standard policy language that says coverage for lost business income and accompanying extra expenses is triggered by business suspensions caused by "direct physical loss of or damage to property," and then deny a claim based on lack of property damage.

For businesses that have been forced to close because of stay-at-home orders but have not experienced actual contamination from the new coronavirus, their claims are based on property loss, not alleged damage, so they should be covered, Nation said.

"The insurance companies are saying these two things mean the same thing and you don't have damage — physical damage — and so there is no coverage," he added. "They're wrong. They wrote the policy. In the policy, every word matters."

If a policyholder has lost the use of their property for its intended use, that's direct physical loss, he asserted, adding the law is clear that insurance agreements must be interpreted broadly to the benefit of the insured.

"The insurance company intended to insure a restaurant operating as a restaurant. It's right on the application. They intended to insure a pilates studio as a pilates studio. If you've lost the use of function of your building to operate for its intended purpose, that is direct physical loss. The insurance companies are ignoring that," Nation said.

Nation also pointed to "civil authority" provisions, which are intended to insure loss of business income due to government actions that prohibit access to the business, as another form of coverage that might be triggered in these situations. Such provisions also were cited in the two class actions Marks is involved in.

In those cases — brought by a South Florida restaurant against insurance giant Chubb International and by a shuttered Miami Beach beauty salon against HDI Global Specialty SE, Axis Specialty Europe SE and underwriters at Lloyd's of London — the plaintiffs both allege their insurers breached insurance policies that provide unconditional coverage for "all risks," except those that are specifically omitted. They say their policies contain no applicable exclusions that would allow denial of their claims due to the coronavirus outbreak.

Marks also said that while a large number of insurers took the opportunity to incorporate a virus exclusion that the Insurance Services Office, a company that writes standard policy language for insurance contracts, drafted for the industry in 2006 after the SARS epidemic, he thinks it is very clear that the policies in both of the cases he has filed did not explicitly exclude viruses.

"The way we look at it, the cases we want to bring are the cases that have clear coverage," said Stephen N. Zack, administrative partner of the Miami office of Boies Schiller Flexner LLP, who is co-counsel in the Chubb case. "There shouldn't be a long and tortured dispute about paying the coverage under the premiums."

But Morgan & Morgan's Nation contended there is still a path to recovery even in cases involving insurance policies with ISO's post-SARS virus exclusion, saying that applies only to damage claims.

"It does not apply to direct physical loss, and yet the insurance companies put in their denial letters, 'Look, we have a virus exclusion,'" Nation said, adding that case law in almost every state says such exclusions must be interpreted narrowly. "They don't tell their insured that it only applies to property damage to buildings."

Nation said some insurers have also attempted to rely on "microorganism exclusions" for denials, despite viruses not being considered microorganisms, and others are citing limited virus coverage that applies only to the actual "presence" of a virus on the property, which does not apply to many of these interruption claims.

In another effort to hold off claims, Nation said, insurers have erroneously asserted to his clients that they cannot recover on a claim if they have received money under the federal government's Payroll Protection Program.

The Small Business Administration has retained a right to recover those funds and, under Florida law at least, the fact that the government may not ultimately exercise that right does not change the fact it is there, so the insurer is not entitled to an offset, he said.

With the American Property Casualty Insurance Association projecting losses to small businesses will reach $431 billion per month, the need for insurers to be held to bear their share and pay out on owed coverage is imperative, Zack said, not just because of the financial, physical and emotional tolls the situation is taking, but also because the government just cannot shoulder the cost itself.

"The government wasn't receiving the premiums," Zack said.

Yet in an interview Friday, Jimi Grande, senior vice president of government affairs for the National Association of Mutual Insurance Companies, said he could state unequivocally that unless a policy was designed explicitly to cover a virus or pandemic, it doesn't cover it. 

"Unless somebody specifically said, 'I'd like coverage to cover viruses and a pandemic,' and that was put in, the policy was not designed or priced or intended to cover that," he said, adding he thinks policies that contain virus exclusions are especially clear but that coverage is also not automatically provided by policies that do not.

Grande repeated the position that the NAMIC, APCIA and other industry members made in an April 3 letter to federal lawmakers saying the industry cannot cover financial losses resulting from COVID-19 as part of businesses' interruption coverage because the nation's insurance coverage model is based on spreading risk and cannot account for "a situation in which losses are catastrophic and nearly universal."

He also strongly rebutted some lawyers' assertions of a strategic public messaging campaign by insurers against coverage.

"There are no paid advertising campaigns to try to get a message out around business interruption insurance, unlike the other side that has paid campaigns and partnered with celebrity chefs to get out a message that unfairly depicts the industry as denying valid claims," Grande said.

"If I sell you an insurance policy and I didn't include 'X' and now you want me to pay you for 'X,' the contract language is all we have to go by," he added. "I understand, it's why we have a legal system. It would be better if we didn't have a legal system that tried to exploit crises. I kind of think that's what the plaintiffs' bar is doing."

Marks said insurers' arguments that coverage must be denied because the paid premium amounts do not cover the losses are unavailing. The insurance industry had the ability to limit or cap damages, and that many did so by including language in individual business interruption policies limiting time periods covered and dollar amounts, he said.

Under the current circumstances, the plaintiffs' attorneys stressed the importance of businesses filing a claim in the first place to preserve a potential legal claim.

A simple letter that broadly tells the insurer "I'm looking for all coverage under my policy for these business losses" is best to prevent the insurer from cutting off the inquiry because the business did not use the same specific wording that the insurer chose, Nation said.

It is a natural first step when a business incurs a loss to call the person who sold them their policy, but there is learning curve for brokers, and many have been simply accepting the denial letters, Marks said.

"A lot of people just get a denial of coverage and think that's the end of the story," Zack said. "That's just the beginning."

--Editing by Philip Shea and Emily Kokoll.

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