State Commissioner Warns Insurers to Cover Business Interruption Claims

The California Department of Insurance is examining numerous complaints from businesses and public officials about insurance representatives trying to discourage policyholders from filing business interruption claims.

Insurance Commissioner Ricardo Lara issued a notice requiring insurance companies and other businesses licensed by the department to comply with their contractual, statutory, regulatory and other legal obligations and fairly investigate all business interruption claims caused by COVID-19.

“I want to be absolutely clear that insurance companies need to fairly investigate all business interruption claims as they would during any disaster,” Lara said Wednesday. “Policyholders deserve all the services, coverage and benefits they are due under their policy.”

That includes claims related to business interruption insurance claims, event cancellation claims and other claims filed by California businesses related to COVID-19.

Businesses are advised to immediately acknowledge notice of any claim, but are required to do so within 15 calendar days.

Insurers must also provide the policyholder with the necessary forms, instructions and reasonable assistance to complete claims and prompt an investigation, and accept or deny the claim, in whole or in part, no more than 40 days after receipt of the proof of claim.

The amount of the claim accepted or denied by the insurer must be clearly documented in the claim file unless the claim has been denied in its entirety, according to the notice.

In one high-profile dispute, defense attorney Mark Geragos is seeking a court order directing Travelers Indemnity Co. of Connecticut to provide compensation for financial losses suffered since Los Angeles Mayor Eric Garcetti’s March 15 order directing all non-essential businesses to close because of the coronavirus outbreak.

The Geragos & Geragos law firm is technically exempted as an essential business under Garcetti’s order, but access to the business has been sharply curtailed, according to court papers filed Friday by Geragos and his firm.

Geragos and the firm believe Travelers has “no intention of providing any coverage … due to a loss and shutdown from a virus pandemic,” according to their court papers. “Any effort by Travelers to deny the reality that the coronavirus causes physical loss and damage would constitute a false and potentially fraudulent misrepresentation that would endanger policy holders such as plaintiff and the public.”

A spokesman for Travelers told Law360 that its standard commercial property policies, which include business interruption coverage, also have “very specific exclusions stating that losses from a virus or bacteria, including physical damage or income, are not covered.”

“We will continue to engage with policymakers and regulators to help them find effective solutions to support businesses in managing through this unprecedented crisis,” the spokesperson said.

Travelers has pledged $5 million to COVID-19 relief efforts in America, the U.K. and Republic of Ireland, according to its website. The company is also suspending coverage cancellations through May 15 and giving auto insurance customers a 15% credit on premiums for April and May.

The Department of Insurance strongly encourages businesses to review their policies, including policy exclusions, coverage limits and applicable deductibles, and contact their insurance companies to determine what their policies cover.