Federal Judge Denies Bid to Remove COVID-19 Business Interruption Suit

A federal judge in California disappointed a law firm suing Travelers Insurance over coronavirus lockdown related business interruption claims in refusing to remove its case to state court and denying its request for a dismissal or stay of a countersuit by Travelers.

However, U.S. District Judge Philip S. Gutierrez in Los Angeles did not end the legal challenge for the insurer over business interruption claims. He combined the law firm’s suit and insurer’s countersuit into one case for future pleadings.

Travelers is seeking a declaratory order that the business income losses claimed by law firm Geragos & Geragos related to the COVID-19 pandemic are not covered by its policies.

The law firm sued in April 10 over Travelers’ denial of its business interruption loss claims. The firm has argued that the order of a shutdown of nonessential businesses by Los Angeles Mayor Eric Garcetti constituted a “prohibition of access” to its premises that should trigger coverage under the policy and provide coverage for current and future similar civil authority closures of commercial buildings in California.

Travelers says a pandemic or virus is not a covered loss under the policies. The insurer insists there is no coverage for G&G’s claimed losses because any suspension of G&G’s operations was not caused by “direct physical loss of or damage to property” at the law firm’s premises. In addition, the insurer says the presence of coronavirus on a surface would not cause physical damage to that surface.

Further, Travelers argues, there is no coverage under the civil authority provision because the governmental orders were not “due to direct physical loss of or damage to property at locations, other than described premises, that are within 100 miles of the described premises.”

Judge Gutierrez ruled that the litigation would remain in federal court as preferred by Travelers. G&G had argued that its suit should be in state court due to a lack of diversity. However, the judge said diversity exists given Travelers is an out-of-state insurer and G&G is based in California. The judge rejected the law firm’s adding Mayor Garcetti as a defendant in an apparent attempt to defeat diversity. The judge rejected the law firm’s adding Mayor Garcetti as a defendant in an apparent attempt to defeat diversity. The judge found that G&G’s complaint identifies no dispute with the mayor and seeks no relief from the mayor.

On April 20, Travelers filed its countersuit on May 15, the disputes were moved to the federal court on grounds of diversity jurisdiction.

A Travelers spokesperson said the insurer is “pleased with the decision to continue in federal court.”

The judge found no reason to exercise the court’s discretionary authority to dismiss the Travelers filing seeking a declaratory order.