In our original first alert about COVID-19 business interruption insurance coverage that we authored at the pandemic’s outset, we predicted extreme rigidness by insurance companies and coverage denials galore. Regrettably for policyholders, our prediction came true, with myriad insurance coverage lawsuits following in U.S. state and federal courts. To date, the vast majority of federal and state courts have sided with the insurance industry – nearly 83% of rulings on the merits have favored insurers so far.
Did Ohio Just Turn the Tide, or Did It Set the Stage for U.S. Policyholders’ Final Act?
Despite the formidable abundance of early marks in the “win” column for insurance companies, the winds may have just shifted in Ohio. Following on the heels of a major victory for policyholders in the United Kingdom on January 15, 2021 (which has no binding effect in the U.S. but may push forward the excruciatingly slow process of tenderizing insurers), an Ohio federal court just handed policyholders what is widely considered their first resounding victory in a U.S. federal court. Judge Dan Aaron Polster – the same judge overseeing the high-profile national opioid litigation collection of lawsuits – issued a summary judgment merits ruling on January 19, 2021, in the case Henderson Road Restaurant Systems, Inc. d/b/a Hyde Park Grille, et al. v. Zurich American Ins. Co., United States District Court for the Northern District of Ohio Case No. 1:20-cv-01239. In his opinion, Judge Polster held that the COVID-19 pandemic resulted in business interruption losses that were insurable and covered under the business property insurance policy that Zurich American Insurance issued to the Hyde Park group of restaurants.
True to form, though, nothing comes easy for policyholders in the world of COVID-19 business interruption insurance coverage. Less than a month before Judge Polster issued his ruling, one of his colleagues issued an opinion adopting the diametrically opposite view. On December 21, 2020, Judge Pamela Barker held that the pandemic did not result in insurable business interruption losses to the plaintiff restaurant in the case Santo’s Italian Café LLC d/b/a Santosuossos Pizza Pasta Vino v. Acuity Insurance Co., United States District Court for the Northern District of Ohio Case No. 1:20-cv-01192.
In the midst of these dueling outcomes, the plot thickened. On Jan. 19, the same day that Judge Polster issued his ruling, yet another federal judge in the same court certified a question to the Ohio Supreme Court on a key issue that partly determines whether the pandemic resulted in insurable business interruption losses. Recognizing that no controlling Ohio precedent has been issued yet on what she correctly characterizes as “an important question of state law implicating many cases,” Judge Benita Pearson determined it is best for the Ohio Supreme Court to weigh in rather than having federal judges predict what the Ohio Supreme Court would say. She issued her certification request in the case Neuro-Communication Services, Inc. v. Cincinnati Insurance Company, United States District Court for the Northern District of Ohio Case No. 4:20-cv-01275.
What Comes Next?
The Santo’s Italian Café case has already been appealed to the federal Sixth Circuit Court of Appeals, and it stands to reason that Zurich American Insurance will likewise appeal the Henderson Road case to the same appeals court.
The Sixth Circuit may view these conflicting Ohio cases as an opportunity to weigh in quickly to establish itself as a thought leader on what is indisputably the most important insurance coverage topic in the United States since the early asbestos and environmental cleanup coverage fights. On the other hand, the Sixth Circuit may pause those appeals and await the Ohio Supreme Court’s word on whether it will accept the question that Judge Pearson certified to it. If so, the Sixth Circuit may then further await the Ohio Supreme Court’s substantive ruling, which could in turn influence how the Sixth Circuit rules.
However these issues proceed – whether through the Ohio Supreme Court or the Sixth Circuit, or both – they will have sweeping consequences and will be influential throughout the U.S. If those courts effectively determine that COVID-19 business interruption losses are generally covered by insurance, then many companies, including in the devastated entertainment and hospitality industries, may finally get an opportunity to negotiate money from their insurers and live to see another day. By contrast, if these courts say “no dice” to the policyholders, then it will be a long time, if ever, before insurers soften and begin settling these claims rather than litigating them to conclusion.
It remains to be seen how long before we know the outcomes of these cases, but we do expect to see meaningful action in 2021. It is likewise impossible to predict with certainty how these cases will ultimately be decided, but the volume of pro‑insurer court rulings from around the U.S. coupled with the current makeup of the Ohio Supreme Court certainly position policyholders for a nerve-wracking wait.
So What Is a Policyholder to Do?!
For starters, we cannot stress enough that the language can vary widely from one insurance policy to the next, so it’s critically important for your company’s designated risk manager to carefully review your policies, with or without the aid of your insurance broker or outside insurance coverage counsel. This review should have happened long ago, but if not, that should occur immediately.
For those policyholders who have policies that actually contain specific communicable diseases coverage, hopefully your claim is already well underway. For those who have more typical business interruption provisions in commercial property insurance policies, you should have already put your insurance company on notice, and you likely already received a denial of coverage or some noncommittal response. Either way, it is mission-critical to know and comply with all notice provisions and any limitation of action clauses (which contractually shorten the statute of limitations for bringing a claim against your insurer).
While it is tempting to spring into action and begin vigorously communicating with – or even suing – your insurance company in light of Judge Polster’s Henderson Road opinion, the more prudent approach for many policyholders may be to continue to follow these cases as they wind through the system and be prepared to pounce forcefully if the higher courts side with the policyholders.
If your company would like our assistance in designing the coverage strategy that is the best fit for it, be it anywhere along the spectrum from tactical aggression to measured caution, we will be grateful for the opportunity to help.
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