Leading Insurer Sues to Exclude Coverage of Mark Geragos' COVID-19 Losses

Let's get "physical": The COVID-19 crisis reaches its parsing stage.
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Now, and for many years to come, businesses will attempt to pick themselves up after being ravaged by COVID-19. Expect large and small companies to be in court for quite some time with their insurers. One of the earliest battles to watch may now be shaping up in California between a pair of star litigators set to parse the meaning of this worldwide pandemic.

Two weeks ago, Mark Geragos filed a flurry of lawsuits in Los Angeles Superior Court aimed at forcing Travelers Insurance to cover his law firm from losses stemming from Los Angeles Mayor Eric Garcetti's order to close nonessential businesses. Now, Travelers Insurance has gone on the offense. On Monday, led by Gibson Dunn partner Ted Boutrous, Travelers filed its own lawsuit against Geragos' firm in federal court and is seeking a declaratory judgment that Geragos' insurance policies don't cover the novel coronavirus.

The dueling lawsuits will test an issue that's surely meaningful to others.

Before the lockdowns, many in entertainment looked to government before canceling events and changing plans. Not necessarily because they saw politicians as offering medical guidance, but rather because the triggering event under many insurance policies is when civil authorities do something to cause interruption. Only when it becomes impossible to proceed can businesses feel somewhat reassured they could recover losses.

Except that's not the end of the story, because of course insurance is a complicated product, there are trillions of dollars at stake, and lawyers will get involved.

According to the complaint filed by Travelers Insurance, Geragos must not only sustain expenses as a result of a civil authority preventing access to his premises. The expenses must also be due to "direct physical loss of or damage to property." 

Just what does "physical" mean?

Geragos appears to have some ideas. On an April 7 phone call, the complaint continues, he told a Travelers rep how SARS-CoV-2 was detectable in aerosols and that public spaces have been fumigated. So the virus was causing physical damage.

Travelers asserts otherwise. "The presence of SARS-CoV-2 on a surface would not cause physical damage to that surface," suggests the insurer's complaint (read here), which also notes Geragos has recently been active in his legal practice.

Perhaps even more of a hurdle for Geragos is an exclusion in his firm's policy. He'll have to get around a portion of the policy that states, "We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease."

But Geragos' own lawsuit contends that the policy has no exclusion for a "viral pandemic."

Reached for comment, he explains, "A virus that causes physical distress, illness or disease is not a pandemic that causes business disruption. The order by the mayor caused the business interruption."