Dallas Restaurants Sue Insurers Over Denied COVID-19 Loss ClaimsJuly 27, 2020
Business Interruption Policies Should Cover Coronavirus Losses, Restaurants Say
A federal judge will soon decide whether Cincinnati Insurance Co. wrongfully denied a business interruption claim—and whether a Dallas restaurant group is entitled to compensation for losses stemming from forced shutdowns due to the coronavirus.
This decision is just one of many that are pending in COVID-19 lawsuits filed by Dallas-area restaurant owners. While the outcomes of these cases could make or break some of the restaurants involved, these decisions may also have big impacts on how insurers handle COVID-19 loss claims for other businesses.
A Closer Look at Vandelay’s Coronavirus Lawsuit Against Cincinnati
The case against Cincinnati (Case No. 3:20-cv-01348) was filed by Vandelay Hospitality Group LP and is currently pending in the U.S. District Court for the Northern District of Texas. According to court documents, Vandelay alleges that:
- Cincinnati made an “erroneous assertion” regarding the claim: In a denial letter issued to Vandelay in March 2020, Cincinnati asserts that the reason for the denial is that COVID-19 has not caused any direct physical losses. Vandelay, however, disagrees. Citing the Dallas County Safer at Home Order, issued on April 6, 2020, Vandelay borrows the language of Judge Clay Jenkins, who stated that “the virus is physically causing property damage due to its proclivity to attach to surfaces for prolonged periods of time.”
- There are no pandemic exclusions in its business interruption policy: Vandelay’s “all risk” policy covering Hudson House, Drake’s Hollywood, and East Hampton Sandwich Co. does not contain any specific exclusions for pandemics, the restaurant group claims. In the complaint, Vandelay notes that “had Cincinnati wanted to exclude pandemic-related losses under the policy, it easily could have attempted to do so on the front-end with an express exclusion.”
- Cincinnati acted in bad faith and is in breach of contract: Based on the above arguments, Vandelay believes Cincinnati wrongfully denied its claim and, therefore, has failed to honor the terms of its policy (the contract). Consequently, Vandelay is requesting that Cincinnati reimburse them for their revenue and property losses, with an additional 18% in annual interest.
- Cincinnati will try to compel Vandelay into accepting a low settlement: Vandelay believes that Cincinnati will drag out litigation to try to drive up costs and put serious financial pressure on the restaurant group. In fact, Vandelay alleges that Cincinnati will leverage the situation to put the restaurant group in a tough position, where it may be forced to take a lowball settlement offer because it can’t afford to keep fighting it out in court.
Cincinnati has refused to issue any public statement regarding the case. Nevertheless, some insurance professionals have weighed in, warning that the industry could become insolvent and unstable if insurers are forced to cover COVID-19 loss claims.
More Dallas Restaurants File Lawsuits Over Denied COVID-19 Loss Claims
Vandelay’s case is one of many COVID-19 loss claims that Dallas-area restaurant owners have filed against insurance companies. Others include coronavirus lawsuits filed by the owners of:
- Lombardi’s Inc.: Indemnity Insurance Company of North America (d.b.a Chubb) wrongfully denied Lombardi’s coronavirus loss claim within 24 hours of the claim being filed, Lombardi’s alleges in this case (Case No. DC-20-05751). Lombardi’s operates Toulouse, Lounge 31, Lombardi’s Catering, Taverna, Kai, and Penne Pomodora.
- Salum: In this case against Travelers Indemnity Company (Case No. 3:20-cv-01034), the owners of Salum allege that their business interruption policy doesn’t specifically exclude pandemics, nor does it mention viruses or bacteria. Therefore, they say Travelers’ denial of their COVID-19 loss claim was done in bad faith.
The resolutions in these cases may spark a cascade of similar lawsuits against insurance companies while rattling the insurance industry—and possibly changing it forever.
COVID-19 Loss Claims & Lawsuits: The Bottom Line
With coronavirus loss claims, the bottom line is that many insurance companies are putting up a fight. They know that millions of businesses (in and outside of the restaurant industry) had to shut down due to government orders. That’s a lot of loss claims, which could mean big payouts. So, it’s no big surprise many insurers are claiming that they don’t cover pandemic losses right out of the gate.
For business owners, the takeaway is that you shouldn’t expect insurance companies to honor your policy or your claim. If you start getting pushback on a business interruption claim—or any valid insurance claim—an attorney can help you fight back, protect your rights, and seek full, fair compensation.