Strip Clubs Go After Lloyd's For COVID-19 Closure Coverage

avatar for doctorevil
doctorevil
Evil Lair
Law360 (August 26, 2020, 4:25 PM EDT) -- A group of 23 U.S. strip clubs is suing multiple Lloyd's of London syndicates for refusing to cover their claimed business losses stemming from government-issued COVID-19 closure orders, alleging the insurer is seeking to rewrite the policy's mold exclusion by saying it includes the concept of a virus.

The clubs and an "adult superstore" say in Monday's complaint that their policy with Lloyd's does not exclude loss caused by government orders and that none of the policy exclusions apply. They say they hold an "all risk" policy with the insurer that provides a coverage limit of $10 million per occurrence.

The strip clubs, which operate in several U.S. states including California, Florida and Pennsylvania, say that they lost millions of dollars after 17 of them were forced to close and in six others in Iowa, Texas and Minnesota had to limit operations due to government orders in March.

The clubs say the nature of their operation can make COVID-19 easily transmittable, since their businesses are conducted exclusively indoors with employees in "close proximity" to customers. Lloyd's denied their claims in late May, saying they had sustained no physical damage or physical loss.

There is no question the policy defines physical damage as meaning physical alteration on a property, but the group says a loss should be interpreted as indicating losing possession and a loss of use, which is what the clubs experienced by not being able to use the premises to conduct business.

The clubs say they experienced direct physical loss from state-mandated closures and that the policy never excluded loss caused by government orders.

"The policy does not contain any exclusion that applies to orders, such as the COVID-19 governmental order issued by states, such as California and other states or other government authorities that prevent the plaintiffs from continuing their business operations because of public health and safety issues," the suit says. "Accordingly, the shutdown orders constitute a covered risk."

The clubs say Lloyd's wrongly relied on a mold exclusion to avoid paying claims, since the COVID-19 virus is not a living organism and cannot be defined as a mold or fungus. They argue that Lloyd's is asking a court to rewrite the mold exclusion to make it include the concept of a virus.

And even if the mold exclusion applied, the clubs say, their losses are solely caused by shutdown orders, not the coronavirus, and the policy never stated it bars coverage for government orders. They add that the contamination exclusion also fails to apply, because it is only triggered when the properties are contaminated, and since the strip clubs were closed, there were no findings of contamination from COVID-19.

Under California law, pollution exclusions apply only to situations "commonly" understood as environmental pollution, the group said, so even if the virus were found to have contaminated their properties, the contamination exclusion does not apply since the circumstances at issue do not arise out of environmental pollution.

The strip clubs are demanding actual and compensatory damages to be determined in a jury trial, along with attorney fees.

Representatives for the parties could not be immediately reached for comment.

The clubs are represented by Matthew A. Berliner, Peter E. Garrell, Salvatore Picariello and Stanley H. Shure of Fortis LLP.

Counsel information for the defendants was not immediately available.

The case is Rialto Pockets Inc. et al. v. Certain Underwriters at Lloyd's London, Including Beazley Furlonge Ltd., case number 2:20-cv-07709, in the U.S. District Court for the Central District of California.

8 comments

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avatar for twentyfive
twentyfive
4 years ago
I’ve always said that Insurance Companies are the most dishonest, unethical businesses ever
No other business sells you a service than refuses to provide what you’ve paid and contracted for.
avatar for twentyfive
twentyfive
4 years ago
^ as their business model
Sorry it cut off
avatar for doctorevil
doctorevil
4 years ago
"No other business sells you a service than refuses to provide what you’ve paid and contracted for." Other than those independent contractor exotic dancer services (sometimes).
avatar for twentyfive
twentyfive
4 years ago
@doctorevil
Yes but not as a business model, they write contracts and as soon as a claim is made the get their in house attorney teams to rewrite and add waivers
I believe that the entire legal system of torts is financed by the insurance industry yet you can’t get access to reasonable legal representation unless there’s a potential for huge payoff
avatar for rickdugan
rickdugan
4 years ago
===> "There is no question the policy defines physical damage as meaning physical alteration on a property..."

This. The attempts of certain groups and even states to redefine what this means in order to place insurance companies on the hook for government mandated closures is ridiculous. If this crazy ass "loss of use of property due to government mandates" interpretation became a precedent then it would bankrupt the entire industry, including Lloyd's.

To be clear, I'm no fan of insurance companies and I detest all government mandates to buy auto and other insurance. But these policies were simply never designed or priced to cover something like this.
avatar for twentyfive
twentyfive
4 years ago
^ That’s stupid they write terrorism clauses they write business interruption insurance with the expectations that they’re able to withstand the litigation they full well know is going to be involved
Shit man they write windstorm insurance than they try to negotiate with a homeless homeowner please spare us and don’t worry about the insurance industry going broke
avatar for skibum609
skibum609
4 years ago
No physical damage = no recovery. The mold defense is absurd, but just one of many defenses. You can buy coverage for anything that shuts down your business; the clubs didn't. Penny wise, pound foolish.
avatar for rickdugan
rickdugan
4 years ago
===> "don’t worry about the insurance industry going broke"

Well, if 25 said it on the Internet then it must be true. 😉

Except it isn't. If insurance companies were forced to pay out lost business income to most of their policyholders then the industry would be decimated.

Insurance companies rely upon statistical modeling to game out how much they may have to pay out in a year and price policies accordingly. Then they leave a certain margin for error for a profit margin and higher than normal claims, which is held in their general accounts and invested. None of them have game planned amounts needed to cover unprecedented government shutdown mandates like this PLUS their normal policy payouts.

Sometimes bad shit happens and there is nobody to blame.
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