Pandemic Payouts Would ‘Put Solvency At Risk,’ Insurers Claim

ST. LOUIS -- As the coronavirus pandemic batters the regional economy here, insurance companies have consistently rejected claims filed by businesses, cities and others in the St. Louis area trying to recoup staggering financial losses.

Several lawsuits filed recently in U.S. District Court in St. Louis reveal insurers are arguing that viruses are not covered under what is known as "business interruption insurance," and the insurers say paying claims would lead to financial ruin as they're unable to cover the scope of the financial losses.

The latest lawsuit to end up in federal court here involves the city of Richmond Heights, which filed an insurance claim in May that was subsequently rejected in September.

Mt. Hawley Insurance Co. then sued Richmond Heights on Nov. 6, asking a judge to affirm that the company was right to reject the claim. The suit says that the city's insurance policy, which covers the loss of sale tax revenue to the city due to business shutdowns, does not apply to the pandemic. It says St. Louis County health orders did not require businesses in the city to shutter, and did not prevent customer access to those businesses. The suit says the policy also does not cover losses due to government actions and excludes losses due to "pollutants," including viruses.

Richmond Heights City Manager Amy Hamilton said in an email this week that the city had claimed $1.6 million in lost tax revenue, and that Mt. Hawley had wrongly denied the claim. A lawyer for Mt. Hawley did not return a message seeking comment.

Richmond Heights is not alone in its experience.

Lindenwood University sued Zurich American Insurance Co. last month, saying the closing of dorms and dining halls, the reimbursement of student tuition, loss of summer camp income and other moves has had a "devastating financial impact" in the millions of dollars. Room and board refunds alone totaled $5 million, the suit says.

Zurich's lawyers have not responded to the suit. The company said in June, however, that proposed state and federal legislation that would force insurance companies to cover business losses would "significantly reduce insurers' ability to pay (other) covered claims while putting their solvency at risk."

The vast majority of policies don't cover virus risks, and therefore are not reflected in insurance premiums or reinsurance that insurance companies purchase to protect themselves, the company said.

Also in June, the Hais, Hais and Goldberger law firm in Clayton sued Sentinel Insurance Co. in St. Louis County Circuit Court, saying revenue was down at the divorce firm by at least 41% due to the pandemic.

That case is pending.

Lawyers for Sentinel said in filings that at least four judges around the country have said that the virus exclusion in policies applies to the pandemic.

It's not clear how many other cities either here or nationally have also filed claims. A spokesman for the American Property Casualty Insurance Association said he did not know, and any lawsuits would be scattered in many courthouses.

The association says total losses for businesses nationally with fewer than 100 employees could be $255 billion to $431 billion per month. It says forcing insurers to cover pandemic losses when the policies don't cover it and premiums didn't pay for it would be unconstitutional.

The Reuters news agency in June cited experts who said actual claims would be a small fraction of that because many businesses either don't have business interruption insurance or have policies that specifically exclude pandemic losses.

Policy language crucial

The outcome of the various suits will hinge on the language in insurance policies.

In September, a federal judge denied an insurance company's motion to dismiss a lawsuit filed by a group of hair salons in the Springfield, Missouri, area and restaurants in the Kansas City region.

U.S. District Judge Stephen R. Bough wrote that the "all risk" insurance policies truly covered all risks that were not specifically excluded, adding that the policies did not exclude damage due to "viruses or communicable diseases" and did cover lack of income "caused by action of civil authority that prohibits access to" those businesses.

Lawyers are trying to turn that case, and similar ones filed by other Kansas City restaurants, into a class-action lawsuit.

In August, a panel of federal judges that decides whether similar lawsuits should be consolidated said there were too many variables among insurance companies and insurance policies to group cases from around the country.

But last month, lawsuits against Wisconsin-based Society Insurance were consolidated into a group of cases being handled in federal court in Chicago. That group includes a business interruption lawsuit filed in Madison County Circuit Court by the owners of five Illinois Qdoba restaurants and a Culver's restaurant.

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