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Law360 (June 24, 2020, 7:47 PM EDT) -- An Anytime Fitness franchisee that operates gyms in Mississippi and Alabama sued Markel Insurance Co. in Illinois federal court Wednesday, claiming the insurer wrongly denied coverage for business interruptions related to the coronavirus pandemic.
Fountain Enterprises LLC says in its proposed class action complaint that it has suffered and continues to suffer "significant and injurious losses and expenses" after being forced to suspend business operations at its four Anytime Fitness locations to stem the spread of COVID-19 in late March.
Just days after reporting its losses to Markel, the Illinois-based insurer denied coverage, "showing Markel engaged in no meaningful investigation of the claims or review of the policy," Fountain said.
"The actions of Markel in improperly denying Fountain's claim were a blatant disregard for the contractual rights of Fountain resulting in a material breach of Markel's duties and obligation owed under the policy and deprived Fountain of the benefit of its bargain, causing serious financial damages to Fountain," the franchisee said.
Additional losses include frozen billing for non-prepaid members, no extensions of non-prepaid membership contracts and the inability to acquire new members or sell items in stores, Fountain said. Though both states have since allowed gyms to reopen, restrictions on operating hours and capacity remain, and staff must constantly disinfect and clean the facilities, according to the lawsuit.
"Insurance exists to protect people and their property, including businesses. For this safety net and peace of mind a fair premium is paid. No one expects or wants to turn to insurance payouts, but when extreme circumstances demand it we must be able to count on the agreements we've signed," said Grant & Eisenhofer attorney Adam Gomez, one of the attorneys representing the proposed class, in a statement Wednesday. "For Markel to turn from its contractual obligations in the face of the terrible toll this virus has exacted is inexcusable. We intend to hold them to account, and to their word, to Anytime Fitness."
Fountain says in its complaint that it reasonably expected claims for lost business income and extra expenses arising from the inability to use its gyms would warrant payment "unless specifically and unambiguously excluded."
Specifically, the franchisee cites in its policy a "Health Clubs Commercial Property Elite Enhancement," which protects Fountain against the actual loss of business income due to a suspension of its operations, and an "extra expense" coverage under which Markel must pay necessary expenses incurred during a period of restoration "that it would not have otherwise incurred if there had been no direct physical loss of the property," according to the lawsuit.
The same endorsement to its insurance policy also provides additional "civil authority" coverage, under which Markel promised to pay for lost business income incurred due to actions of civil authorities "that prohibits access to the described premises."
Fountain seeks to represent all Anytime Fitness franchisees that purchased business income and extra expense, extended business or civil authority coverage from Markel with the Health Clubs Commercial Property Elite Enhancement and have been denied coverage for those coronavirus-related losses or extra expenses.
There are more 4,500 Anytime Fitness franchises, located in all 50 states, according to the complaint.
A representative for the insurer could not be immediately reached for comment Wednesday.
The franchisees are represented by Diandra S. Debrosse Zimmermann, Lisa B. Weinstein, April S. Rogers and Adam J. Gomez of Grant & Eisenhofer PA, L.N. Chandler Rogers of Rogers Law Group and Winston B. Collier of The Collier Firm.
Counsel information for Markel was not immediately available Wednesday.
The case is Fountain Enterprises LLC et al. v. Markel Insurance Co., case number 1:20-cv-03689, in the U.S. District Court for the Northern District of Illinois.
--Editing by Stephen Berg.
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