INSURANCE BROKERS NAMED ON E&O CIVIL CLAIMS RE: PANDEMIC COVERAGE ISSUES

13 May 2020 by Timothy G Ventura Shareholder at Marshall Dennehey

While we have already seen many lawsuits filed in the past month by restaurants and other service industry companies against various insurers across the country seeking business interruption coverage following government-mandated closures and claim denials, last week we saw one of the first civil suits filed against the retail and wholesale brokers as well.

In the suit, Ja-Del Inc. v. Zurich American Insurance Co., Lovell Sagebrush Insurance Group Inc. and R-T Specialty LLC, filed in state court in Kansas City, Ja-Del, which operates Jack Stack Barbecue Restaurants, says it has seen a substantial loss in income “and direct physical losses” since local authorities in Missouri ordered businesses to shut down last month in an attempt to limit the spread  of COVID-19.   According to the complaint, Ja-Del filed a business interruption claim and received a claim denial letter from Zurich.   Plaintiff alleges that the “‘Microorganism Exclusion’ from an entirely different section of the policy” does not apply to the Business Income Coverage Form.

Simultaneously, plaintiff alleges negligence against the brokers, asserting they breached their duty to the policyholder “by communicating inaccurate information as to what the Policy covered and/or not procuring a policy that fully covered Plaintiff’s business income losses,” the suit says.  In addition, the brokers “made representations to Plaintiff that the Policy covered business income losses, yet, Zurich has denied Plaintiff’s claim,” court papers say.

A motion by the brokers seeking dismissal on the pleadings alone looks appropriate, but it remains to be seen how various state and federal court judges will rule from the outset, and whether some E&O civil claims against agents/brokers are permitted to survive the pleadings stage through discovery, before a summary judgment motion would be filed, in advance of trial.  Aside from standard of care considerations, there are likely causation defenses available to the brokers too, from a coverage standpoint.   

Should you need assistance in defending your agents/brokers in PA / NJ, or any other states we practice (NY/OH/FL/CT/DE) please don’t hesitate to contact us.  

Likewise, we are happy to present a webinar to your claims groups regarding best practices for the defense of insurance agent/brokers on these types of claims and ways to reduce E&O exposure with particular considerations regarding COVID pandemic issues.  Glad to discuss this further if interested.