San Francisco-based children’s clothing boutique Mudpie Inc. has filed a class action lawsuit on behalf of California-based retail stores against an insurance provider, saying the small businesses were wrongfully denied coverage for losses resulting from government-mandated public health shutdowns related to COVID-19 despite having paid premiums for business interruption policies.
The boutique is represented by California-based Gibbs Law Group and Cohen Milstein Sellers and Toll PLLC. The firms are actively reviewing potential claims on behalf of small business owners throughout the country who have been affected by insurance companies’ refusal to pay.
Willis reported last week that COVID-19 may add $16.7 billion to U.S. workers’ compensation losses and increase losses in the U.S. and U.K. by $11 billion for business-interruption and event-cancellations, $4 billion for credit and sureties, $1.5 billion for employment practices liability and $1.5 billion for directors and officers insurance,
Mudpie is a children’s boutique located on Fillmore Street in San Francisco. The lawsuit, filed on Monday, alleges that Travelers Casualty Insurance Company of America acted in bad faith by categorically denying claims from retailers arising from California’s mandated interruption of business services.
According to the complaint, Travelers denies the claims with little or no investigation and without regard for the interests of policyholders.
Travelers issued a response to the suit pointing out that virus exclusions are often included in business interruption policies.
“We recognize that the spread of COVID-19 has affected many of us in ways we never could have expected, and we are taking many steps to support our customers, agents, brokers and communities during this difficult time,” the statement reads. “In our standard commercial property policies that include business interruption coverage, we have very specific exclusions stating that losses resulting from a virus or bacteria are not covered.”
The American Property Casualty Insurance Association, the largest trade group representing P/C insurers, has argued if insurers are forced to pay for losses that are not covered under existing insurance policies, “the stability of the sector could be impacted and that could affect the ability of consumers to address everyday risks that are covered by the property casualty industry.”
Britain’s Financial Conduct Authority (FCA) aims to get business interruption insurance policies examined by a court as soon as July, a member of a policyholder action group said on Thursday.
Business interruption policies were generally not designed to provide coverage against communicable diseases, according to a statement in March from the National Association of Insurance Commissioners.
“Insurance works well and remains affordable when a relatively small number of claims are spread across a broader group, and therefore it is not typically well suited for a global pandemic where virtually every policyholder suffers significant losses at the same time for an extended period,” the NAIC statement reads. “While the U.S. insurance sector remains strong, if insurance companies are required to cover such claims, such an action would create substantial solvency risks for the sector, significantly undermine the ability of insurers to pay other types of claims, and potentially exacerbate the negative financial and economic impacts the country is currently experiencing.”
Allianz, which earlier reported a nearly 30% slump in first-quarter profit, is one of many European insurers warning about the outlook as clients claim for business interruption and canceled events.
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