NEW YORK (Legal Newsline) – A plaintiffs lawyer who took part in the tobacco litigation of the 1990s is now at the forefront of the next great litigation wave, leading a group representing restaurant employees affected by the coronavirus quarantine as insurers claim rewriting policies to cover pandemics will wreck the industry.
John Houghtaling II of Gauthier Murphy & Houghtaling says insurers nationwide are fighting hard to avoid paying valid business interruption claims coverage to policyholders. Last week, he spoke at an online townhall put on by the New York Hospitality Alliance.
Houghtaling's New Orleans law office had a lead role in the landmark $246 billion settlement between Big Tobacco and the attorneys general of 46 states in 1998 and also litigated against insurance companies who refused to pay out claims after Hurricane Sandy in 2012.
“Business interruption coverage is sold by insurance companies and in these policies, it has, specifically, civil authority coverage. That is what is affecting a lot of us, is that the civil authority [government] has actually shut the business down,” said Houghtaling, who is serving as general counsel for the Business Interruption Group.
“And in these policies, there are specific parts and there are coverages, absent exclusions, for when the civil authority shuts you down, so that your business [is covered] and the measure of the loss is from the time of the shutdown to the end.”
Rigie replied he had been told by many New York business owners that if their insurers would pay out such claims, it would be “a lifeline” to their businesses.
But that lifeline would be a noose for insurers, says David Sampson, the president and CEO of the American Property Casualty Insurance Association (APCIA)
“Many commercial insurance policies, including those that have business interruption coverage, do not provide coverage for communicable diseases or viruses such as COVID-19. Pandemic outbreaks are uninsured because they are uninsurable,” Sampson said.
“Any action to fundamentally alter business interruption provisions specifically, or property insurance generally, to retroactively mandate insurance coverage for viruses by voiding those exclusions, would immediately subject insurers to claim payment liability that threatens solvency and the ability to make good on the actual promises made in existing insurance policies.”
Houghtaling doesn't buy that argument, alleging insurers were misrepresenting the terms of the policies to business owners and subsequently not paying out claims on them, using a three-pronged strategy he said that he’s seen repeated time and time again.
“The first thing that they do is they speak to their brokers and their agents before the disaster happens, and they tell them things about the policies, and I often find that those things are intentionally inaccurate. They get that out to the policyholders in advance of the loss to say, ‘This dangerous thing is coming, and you’re not protected,” Houghtaling said.
“The second part is they use a political strategy. They go to Washington, D.C. and they say, ‘We don’t cover any of this. This is a disaster area, you need disaster aid. We’re not the disaster aid that people think,' or ‘You go here to a federal program.’ And then insurers rush to Washington pretending to help [policyholders], and then they put pots of money together as a ‘Don’t look at me, look at this [instead].”
For the final component of their plan, Houghtaling said insurers initiate legal action in lieu of paying claims from their vast cash reserves.
“I’ve watched their playbook, it’s very well-worn. I’ve looked at it and said, ‘You know, this is what we need to do as well, as people who are doing this on behalf of policyholders,” Houghtaling said.
In mid-March, Houghtaling contacted friends who are major names in the restaurant industry, among them Wolfgang Puck, Daniel Boulud and Dominique Crenn, and helped found BIG at that time.
“We needed to do what the insurance industry did. Number one, from a public relations standpoint, we need to go tell people the truth that the virus was causing a very dangerous property condition, and what the insurers were doing,” Houghtaling stated.
“And then two, we also need to go to Washington. We need to tell these politicians, ‘Look, we’ve paid for coverage. We’ve measured our coverage, we have it. [Insurers] are not telling the truth [when they said] all policies have virus exclusions. They’re not telling the truth about the virus.”
Houghtaling also accused the insurance industry of playing poor to Washington politicians through their stance that they had “only” $822 billion in cash reserves to pay a mounting number of business interruption insurance claims.
“They said, effectively and constructively, we are going to take nearly a trillion dollars of your money that is sitting in cash for paying your claims, and they said they’re not even paying claims that have virus inclusions in them. There are claims with pandemics [included in the policies]. They’re paying nobody,” Houghtaling said, later labeling such actions as “morally bankrupt.”
A lawsuit over civil authority coverage filed by Houghtaling on March 16, on behalf of New Orleans restaurant Oceana Grill versus the Lloyd’s of London insurance company in Orleans Parish Civil District Court, was filed as a declaratory judgment action and believed to be the first of its kind in the U.S.
It seeks a judge to decide the law on these insurance policies and declare it is not a defense for an insurer to say the coronavirus is not a dangerous property condition.
Houghtaling said that he and his office had examined about 400 business insurance policies in the past six weeks, and only three had exclusion language for pandemics. The attorney recommended that policyholders check the fine print of their own policies.
“If you have the words ‘virus’ or ‘pandemic’ in there, then you do have a dispute,” Houghtaling stated.
Houghtaling explained BIG wants to collaborate with the insurance industry in getting applicable claims covered and settling on others where there may be a dispute, in lieu of protracted and costly legal battles. But, he does not believe the feeling is mutual.
“The industry is refusing to talk. I haven’t had a single phone call from anyone. They went out and they hired lobbyists and crisis managers, and they’re in Washington right now. I won’t say this about everyone on the other side, but I will say that there are a lot of people that will make a lot of money by defending a trillion-dollar horde of cash and not paying it out,” Houghtaling said.
“There are defense firms around the globe right now that have the potential biggest payday in the history of civil litigation, if they can tell their clients, the insurance companies, ‘Don’t pay now. We’ll fight it. Let us fight it.'”
Houghtaling recommended that any business owners adversely affected by the coronavirus and being denied their insurance coverage should join BIG, send letters to their state attorneys general on the virus being classified as a property danger and persuade their elected officials to support legislation BIG is backing.
“We can’t afford to do nothing,” Houghtaling said.
Restaurants in Pittsburgh are currently pursuing legal action against their insurance company on identical grounds and a class action lawsuit filed in Philadelphia is taking the People’s Republic of China to task for alleged negligence and reckless indifference associated with their response to the coronavirus.
Insurance Trade Group Says Altering Policies May Make Insurers Insolvent
Sampson said APCIA estimates that closure losses just for small businesses with 100 or fewer employees has increased from $255 billion to $431 billion per month.
“These numbers dwarf the annual premiums for all commercial property risks in the key insurance lines of $71 billion per year, or about $6 billion a month. Continuity losses for small businesses are approximately 43 to 72 times the monthly commercial property insurance premiums, which includes coverage for losses as a result of such perils as fire, wind, hail, and water leaks,” Sampson stated.
“The total surplus for all of the U.S. home, auto, and business insurers combined to pay all future losses is roughly only $800 billion, with the combined capital of the top business insurance underwriters representing only a fraction of that amount.”
Sampson added APCIA supports federal assistance programs that deliver aid directly to vulnerable business communities, particularly affected small businesses and recently, insurers joined a broad coalition of customers to “advance the COVID-19 Business and Employee Continuity Fund to leverage the ability of the private sector to scale and deploy additional liquidity to our communities.”
From Legal Newsline: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com