Covered or Not Covered? When Your Insurance Premiums Don't Get You What You Paid For
Right now, many business owners are facing a similar situation: your governor or mayor issued an executive order essentially shutting your company down in an attempt to prevent the spread of COVID-19. Setting aside the myriad of constitutional issues with such an order, this also raises many insurance-related questions. For example, are such actions covered by your business' insurance policies? What if you have insurance for your company that provides coverage for the direct physical loss or damage to your business? What about coverage for loss of business income when access to the property is specifically prohibited by order of a Civil Authority (a term defined in the insurance policy, which provides coverage for loss of business income where a government entity denies access to the insured property)?
If your business is forced to close because of an executive order issued by your state's governor or mayor, you would have a loss of business income, but would it be the result of a physical loss or damage caused by COVID-19? In actuality, it seems that you have a loss of business income as a result of an order of a Civil Authority. So, you contact your insurance broker and submit a claim, but the insurance company denies it. What recourse do you have?
Just last week, famous attorney Mark Geragos, who represented such high-profile individuals as Michael Jackson, Scott Peterson, Winona Ryder and Collin Kaepernick, faced such a situation and brought a lawsuit against not only his insurance company but also against the Mayor of Los Angeles. The lawsuit, Mark J. Geragos v. The Travelers Indemnity Company of Connecticut and Eric Garcetti, and was filed on April 10, 2020 in the Superior Court for the State of California, Los Angeles County. Geragos insured a law office and bookstore in Glendale, California and the insurance policy specifically provided coverage for the loss of income "in the event of business closures by order of Civil Authority." In the complaint, Geragos argues that Travelers accepted premiums with no intention of ever providing coverage under the policy's Civil Authority coverage as a result of a loss or shut down from a virus pandemic.
In the midst of COVID-19, the Mayor of Los Angeles issued an executive order closing all "non-essential" businesses; this order came right after the Governor of California issued a similar state-wide order. As a result of these orders, Geragos' access to his businesses was specifically prohibited. Further, Geragos had related issues such as unpaid rent from the tenants of his building. In the lawsuit, Geragos is seeking to have the court issue an order declaring that Mayor Garcetti's order constitutes a prohibition of access to his businesses, which he argues would trigger coverage under his insurance policy. It will be interesting to see how Geragos' lawsuit plays out. There are other similar lawsuits across the country as a result of COVID-19, and we anticipate many more in the future - particularly as insurance companies grapple with whether and how much coverage to provide for claims.
If you're in a similar situation, consult with an attorney experienced in insurance to help you navigate these rough waters. Knowledgeable counsel can help you interpret how the policy provisions may apply to your business. For example, does your policy include an exception for pandemics? If so, is the mandated closure due to the pandemic or due to the government shelter in place mandate? Is your company an "essential business" not subject to the forced closure orders? If it is not deemed "essential" and your physical offices are closed, has your business been completely shut down or has business declined? How you answer these questions and others can make the difference between receiving and being denied the coverage you paid for in case of an emergency. With substantial potential coverage at stake and so many challenges on our shoulders, we need to explore all of the relief resources available to be sure we are not missing out. Insurance proceeds can make the difference between surviving or going out of business so make sure you have the advice you need to navigate the claims process.