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Rhonda J. Thompson

Co-Chair, Insurance Litigation & Coverage Section
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Texas: Business Interruption Lawsuit Filed Over Pandemic Event Endorsement

April 9, 2020 Coverage News

A Texas theater owner filed suit on April 3, 2020 in the Southern District of Texas against a group of underwriters at Lloyd's of London seeking declaratory judgment that coverage exists for business interruption under the "Pandemic Event Endorsement" of the company’s commercial insurance policy.  The Pandemic Event Endorsement defines “Covered Disease” as “limited to the following pathogens, their mutations, or variations: . . . Severe Acute Respiratory Syndrome-associated coronavirus (SARS-CoV) disease.” 

Plaintiff asserts that the endorsement was marketed after the 2014 Ebola crisis, when many insurance carriers created exclusions in commercial insurance policies specific to Ebola and other communicable diseases and viruses.  The Complaint also asserts Lloyd’s represented the endorsement would “fill in the gaps that [other insurers] creatively exclude or do not address[,]” that it would provide coverage for insureds who experience financial damages from business interruption during pandemics, and significant premium was paid for the coverage. 

Plaintiff admits it voluntarily closed and announced closure of all locations on March 17, 2020 until the appropriate public authorities determine the danger from the coronavirus pandemic has passed and is safe to reopen.  The next day, on March 18, 2020, a Lloyd’s agent allegedly represented the COVID-19 was not covered as a named disease under the Pandemic Event Endorsement.  Following, on March 19, 2020, Governor Abbott issued a Public Health Disaster Declaration and Execution Order that constructively closed Plaintiff’s locations.  Plaintiff then filed the Original Complaint on April 3, 2020.

Plaintiff contends Lloyds acted in bad faith, breaching the contact and its duty of good faith and fair dealing when, just one (1) day after the claim was reported, the  Lloyd’s agent represented that COVID-19 was not covered under the endorsement, effectively denying coverage.  Plaintiff alleges Lloyd’s has no reasonable basis to believe the current pandemic is caused by some source other than a mutation or variation of SARS-CoV.  Accordingly, Lloyd’s conduct was committed knowingly, with malice or grossly negligent.   Plaintiff seeks consequential and exemplary damages. 

Notably absent from the Complaint was any mention of what Lloyd’s may have requested Plaintiff provide and/or what Plaintiff provided Lloyd’s in order to reasonably adjust the claim, such as a sworn proof of loss or any other financial information/documentation to support amounts claimed.  In this regard, the lawsuit also seems premature since it was filed before the expiration of time that Lloyd’s had under Tex. Ins. Code 542.055 to request all items, statements, and forms Lloyd’s reasonably believes, at that time, will be required from Plaintiff to investigate the loss. 

While this case is one of first impression—the first involving a “Pandemic Event Endorsement,” like any contract, the terms of agreement between the parties should control and  Coronavirus-related business interruption claims will likely be analyzed in the same way as those following 9/11 and major hurricanes. 

A copy of the Complaint with Pandemic Event Endorsement, likely brochure used to market it (the endorsement references PLIS, Inc.), and a print out the PLIS website are attached. 

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