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  • Business Insurance Coverage – Denial of Business Interruption Claims Due to Michigan COVID-19 Shutdown: Stanford Dental, LLC v. Hanover Insurance Group, et. al.

Sommers Schwartz attorneys Andrew Kochanowski, Jason Thompson, and Robert Sickels filed a class action on behalf of Michigan businesses forced to shut down during the coronavirus emergency, but whose business interruption coverage claims were denied by the defendant insurance companies.

On March 24, 2020, Michigan Governor Gretchen Whitmer issued Executive Order No. 2020-21, which required non-essential workers to stay at home and businesses not involved with maintaining critical infrastructure to close their operations. According to the complaint, the plaintiffs were all subject to, and not excepted from, the emergency Order.

The plaintiffs each purchased a standard-form all-risk “Businessowners Coverage Form” property and casualty insurance policy from the defendants. The policy promised to cover direct physical property loss or damage, and that under a “Civil Authority” provision, the defendants were to pay lost net income, payroll costs, and other business expenses if the plaintiffs’ businesses were “suspended” for any non-excluded reason.

When the plaintiffs filed claims for insurance benefits after the statewide shutdown order forced them to suspend their operations, the defendants invoked a so-called “virus exclusion” to systematically deny all business interruption coverage claims associated with the pandemic.

The plaintiffs argued that the defendants’ interpretation of the virus exclusion was wrong: COVID-19 was not the direct cause of their property damage, nor were the plaintiffs’ businesses suspended because their premises needed to be decontaminated from the coronavirus. Instead, Governor Whitmer issued the Executive Order to ensure COVID-19 did not contaminate their premises or infect their personnel.

The lawsuit alleged that the defendants breached their insurance policy contracts by refusing the plaintiffs’ property loss and business interruption coverage claims. The plaintiffs sought damages from the breach and a declaratory judgment that the policies provided coverage for loss of business income and expenses precipitated by the March 24, 2020, Executive Order.

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