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Matty O’Reilly, Ryan Palmer, Jeffrey Baill, Adam Levitt

Local businesses join virus insurance fight

A Twin Cities restaurant and bar chain and a Minneapolis dental practice are among small businesses filing federal class-action lawsuits over denials of business-interruption claims as a high-stakes standoff ignites between business owners and insurance carriers across the country.

The local businesses — closed under various state orders stemming from the COVID-19 pandemic — are Willy McCoys, a tavern chain with seven suburban locations and up to 500 employees, and Dr. Christie Berkseth-Rojas’ solo practice at Rojas Family Dental. Korey Bannerman, a McCoys owner, said takeout service is available at some spots.

The McCoys chain alleges that Society Insurance of Fond du Lac, Wisconsin, has refused to pay for losses suffered because of the pandemic and shutdown orders in a complaint filed in U.S. District Court for the Eastern District of Wisconsin. Berkseth-Rojas makes a similar allegation against Aspen American Insurance Co. in a complaint filed in U.S. District Court for the Northern District of Texas.

McCoys and Berkseth-Rojas assert that their business-interruption policies do not include “any exclusion for losses caused by viruses and communicable diseases.”

“We filed a claim right away and that got denied relatively quickly,” Bannerman said of McCoys, which operates in Albertville, Andover, Bloomington, Champlin, Chaska, Ramsey and Shakopee. “They said it’s not covered.”

McCoys’ insurance carrier, Society Insurance, doesn’t comment on pending litigation, according to corporate marketing manager Rebecca Kollmann. “But we do look forward to a favorable resolution of the situation in the near future,” Kollmann said.

Reached at her dental office, Berkseth-Rojas declined to comment. Her carrier, Aspen American Insurance, doesn’t comment on pending litigation, a spokeswoman said in an email reply.

Attorney Adam Levitt, co-counsel to the local plaintiffs and a partner at DiCello Levitt Gutzler in Chicago, said insurance carriers are denying claims and “paying their industry lobbyists to cry poverty locally and nationally.”

“What we’ve seen across the board is that the insurance industry has closed ranks and as far as we can tell they’re not paying out on anybody’s claims now,” said Levitt who teamed with other firms to file six business-interruption suits. “Insurers are doing everything possible as we allege in our complaints to not stand behind their obligations.”

The insurance industry is pushing back, however. The American Property Casualty Insurance Association (APCIA) claims that many commercial policies that have business-interruption coverage do not cover communicable diseases or viruses such as COVID-19.

“Pandemic outbreaks are uninsured because they are uninsurable,” APCIA President and CEO David Sampson said in a statement issues earlier this month.

APCIA estimates that pandemic closures are costing small businesses $255 billion to $431 billion monthly, dwarfing commercial property insurance premiums totaling $6 billion a month. The industry has $800 billion on hand to pay future home, auto and business losses. The industry’s stability, APCIA maintains, is important with spring flooding underway, hurricane season looming and wildfires a year-round threat.

Attorney Ryan Palmer, a partner in the Minneapolis office of Lathrop GPM and leader of the firm’s restaurant group, said every restaurant in the country likely is looking at recovery options.

While that poses a big problem for insurers, Palmer said he was not aware of any insurer that has conceded that there is coverage of virus-related closures.

“This is about the survival of those businesses whether it’s on the insurance side or the restaurant side,” Palmer said. “If you play this out and it opens the floodgates for claims I’m not sure that the billions of dollars of insurance reserves are enough to cover the claims that would come. And vice versa if you’ve got denials of every claim you’re going to see an increased number of failed businesses that can’t survive because there’s no cash flow.”

Attorney Jeffrey Baill, partner at the Minneapolis firm Yost & Baill, said many insurance companies are taking the position that business interruption isn’t covered unless the insured’s property has suffered “actual physical damage.”

“That’s a big question,” Baill said. “There’s an obvious argument that it’s not damaged but there are also some arguments that how do we know it’s not damaged.

“Some of these cases may involve policies that don’t have that [virus] exclusion,” Baill said. “But if there is an exclusion the insurance company is going to claim they’ve excluded any damages caused by viruses. That’s going to be a tough one for the plaintiffs to get around. But all these policies are a little bit different.”

Matty O’Reilly, a leading Twin Cities restaurateur and co-founder of hospitality consultancy Banner Year Advisors, said most restaurant managers and chefs struggle with business issues outside of their direct skill sets. O’Reilly’s Republic and Foxtrot Burger Spot restaurants are closed for now while Sandy’s Tavern in Richfield is offering takeout service and Bar Brigade may “reboot” soon.

“It’ll be interesting to see how this plays out,” O’Reilly said in an e-mail exchange. “But predictably [it will be] costly and ugly during a time that we need compassion, help and understanding. … In any case, fighting insurance companies over the fine print doesn’t sound like tons of fun.”

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