KANSAS CITY — A ruling from a federal judge in Kansas City, Missouri, on Wednesday could open the window for thousands of businesses whose insurers turned down their COVID-19 claims.

“This is potentially huge,” said Tom Baker, a professor of law at the University of Pennsylvania, who has been following the myriad cases against the insurance industry amid COVID-19.

“My prediction is that this is not going to be the only case that is going to survive. This is a big deal.”

When the pandemic shut down their businesses for 11 weeks, three Kansas City area restaurants — Grand Street, V’s Italiano Ristorante and Trezo Mare Restaurant & Lounge — were hit as hard as others.

Having lost hundreds of thousands of dollars in sales, the restaurants did what countless others did. They pulled out their “all risk” insurance policies, thinking that their insurer — in this case, the Cincinnati Insurance Co. — would help cover their losses.

“I’ve had business interruption insurance for 57 years,” said Greg Hunsucker, owner of V’s in Independence, Mo. “My impression was that this is exactly what it’s for, when events out of your control cause you to suffer financial hardship. That’s why I thought I was buying it. Nowhere in my policy does it exclude a pandemic.”


Instead the company denied their claims. The three restaurants, joining a suit along with Studio 417, which runs hair salons in Springfield, Mo., sued in late April in federal court.

In similar lawsuits across the country, judges have ruled in favor of insurance companies.

But on Wednesday, Judge Stephen R. Bough in the Western District of Missouri denied the insurer’s motion to dismiss the suit and ruled that the plaintiffs’ case was plausible enough to go forward.

“This is a significant win for insureds, “ Brandon Boulware, the attorney who represents the plaintiffs, said in an email statement to The Star. “The Cincinnati policy … does not contain any exclusion for losses caused by the virus. The Court’s order correctly recognizes that. We look forward to moving ahead with this case.”

None of the four attorneys representing Cincinnati Insurance responded to a request for comment. Betsy Ertel, company spokeswoman, said in an email, “As this case continues, we believe that the court will ultimately enforce the language of our policy contract. Our commercial property insurance policies require direct physical damage or loss to property and do not provide coverage in this case.”

Arguments in the case

Indeed, the lawsuit centers exactly on what the policies cover and how to define the terms “direct,” “physical,” “damages” and “loss.”


The insurance company’s overarching argument, according to text in the judge’s order, is that the policies provide coverage “only for income losses tied to physical damages to property, not to economic loss caused by governmental or other efforts to protect the public from disease.” In other words, they cover direct physical damages or losses from events like storms or fires.

The insurance company argues that COVID-19 “does not damage property; it hurts people.”

Lawyers for the restaurants and hair salons argue that their “all-risk” policies covered them on five fronts after a calamity:

— “Business income” coverage, which should pay them for loss of income during the “period of restoration.”

— “Civil authority” coverage, in case authorities prohibit access to the business. The plaintiffs said this coverage applied because the area-wide closure orders in March essentially shut down their businesses to all dining other than takeout, curbside or delivery.

— “Ingress and egress” coverage, again to pay out income if the entry or exit from their business is hampered. Plaintiffs said it should apply because both the virus and the order rendered their businesses unsafe to enter.


— “Dependent property” coverage if they lose income because of a supplier’s problem. Plaintiffs said the coronavirus plausibly affected their suppliers, affecting their own businesses.

— “Sue and labor” coverage for the cost of taking all reasonable steps to protect the property from further damage. The businesses argued that as called for in their coverage, they took those steps.

In ruling that the case should go forward, Bough found that the plaintiffs made “plausible” claims for coverage in all five matters.

The insurance company argued that because the coronavirus did not cause any actual direct “physical damage,” the case should be dismissed. But the restaurants and salon argued that their policies also covered “physical loss,” which the insurers failed to define in the policies.

This forced the court to rely on a Merriam-Webster dictionary to break down three words, finding that “direct” referred to a “close logical, causal, or consequential relationship.” The word “physical” was defined as “having material existence: perceptible especially through the senses and subject to the laws of nature.” And “loss” was defined as “the act of losing possession” and “deprivation.”

The court found that the plaintiffs plausibly argued that the coronavirus “is a physical substance” that lives on and is active on inert physical surfaces. It is emitted in the air. It attached to their property, making it “unsafe and unusable,” resulting in a “direct physical loss” to their premises.


The court also judged that the plaintiffs had made plausible arguments for claims on the other four fronts.

“In sum” the judge wrote, “Defendant’s motion to dismiss will be denied in its entirety.”

Cases across the country

Similar cases have been surging into courtrooms nationwide.

“There are filed already across the country 900 cases,” in state and federal courts, Baker of the University of Pennsylvania said.

Over half the cases, he said, have been filed in federal court. The number there alone dwarfs the number of cases filed against insurance companies after other disasters, such as Hurricane Sandy.

“In addition to these 900, the lawyers who are bringing these cases have many more people they could represent,” he said.

Two recent similar cases, one before a Michigan court and a court in Washington, D.C., were decided in favor of the insurance companies.


“From my perspective, what this means,” Baker said of the decision in Kansas City, “is that this litigation is not going to be a kind of quick win for the insurance companies. It’s really going to be a nationwide, careful analysis by judges.

Rick Ghilardi, co-plaintiff and an owner of Grand Street, which operates in Lenexa, Kan., and Kansas City’s Country Club Plaza, thinks so. The COVID-19 closure devastated his business, he said, costing him hundreds of thousands of dollars. Businesses like his have hardly recovered. Many have permanently closed.

“That’s why we purchased business interruption insurance, due to situations like this,” he said. “We didn’t close on our own. We were forced to close. I was kind of surprised. We pay these premiums month after month, year after year, only to get shot down: a flat out no.”

Additional court dates have yet to be set.

“I’ve never been in one,” Ghilardi said of a suit against an insurer. “This is all new to me. But I imagine something like this is going to drag on a while.”

©2020 The Kansas City Star (Kansas City, Mo.)