Business Income Cases Litigation strategy

Broker liability for virus exclusions?

Author: William Lyoo Date: 07.01.20

Broker liability for virus exclusions?

Hundreds of plaintiffs have filed suit against their insurance companies to recoup business income losses from shutdown orders across the country.  These suits allege that the insurance companies have denied claims across the board, regardless of the coverage described in the insurance policies.  Some policies include explicit exclusions against loss due to a virus, some hide a virus exclusion within a broader pollution or contamination provision, and some have no such exclusion at all.  While no decisions have yet been rendered, some analysts predict that policyholders with exclusions will be left high and dry, and some policyholder recovery lawyers have declined to represent such policyholders on a contingent fee basis.

Some plaintiffs with exclusions in their policies have also brought suit against the producers who brokered their insurance contracts, alleging negligence in procuring policies that provide insufficient coverage.

For example, in Magna Legal Services LLC v. Hartford Fire Insurance Company et al, Plaintiff included its insurance producer, Nottingham Agency, Inc., and its individual broker agent as defendants.  The insurance policy in question contains a “Pollutant and Contaminant” exclusion, although it does not specifically include “virus.”  Plaintiff alleged reliance on Defendants’ representation as experienced brokers in evaluating and recommending insurance coverage for commercial business clients, and negligence on Defendants’ part in failing to advise Plaintiff about the exclusion or meet Plaintiff’s direction to procure “as broad as possible Business Income, Contingent Business Income, Extra Expense, and Civil Authority coverages.”

In Ethan & Austin, LTD. et al v. Illinois Casualty Company et al, Plaintiffs similarly included their insurance producer, U.S. Insurance Group, and their individual broker agent as defendants.  This insurance policy does contain an explicit exclusion against “Loss Due to Virus or Bacteria.”  Plaintiffs in this case alleged reliance on Defendants’ representation of expertise and that Defendants had a duty of care to exercise reasonable diligence in providing insurance advice.  Furthermore, Plaintiffs allege negligence by Defendants in failing to advise Plaintiffs about the virus exclusion and its impact on business interruption claims, or to procure a broader insurance policy for the Plaintiffs.

Should Plaintiffs in either of these cases fail in their claims against their insurance company to collect business income losses due to the pandemic, they may yet succeed in these claims against their insurance producer.