May 12, 2020

A San Francisco-based children's clothing boutique hit Travelers Casualty Insurance Co. with a proposed class action in California federal court Monday, accusing the insurer of wrongfully denying small businesses coverage for losses resulting from government-mandated shutdowns related to COVID-19.

In a 17-page complaint, Mudpie Inc. says thousands of retailers across the Golden State have been forced to close their doors due to shutdown orders through no fault of their own, yet the Hartford, Connecticut-based insurance company and others are categorically denying them coverage despite premiums paid for business interruption policies.

The suit says the denials are based on "crabbed" interpretation of the policies and overly broad exclusions, and are being made with little or no investigation.

"That gets insurance law exactly backwards — and raises the specter of bad-faith denials," the suit says.

Mudpie says it submitted an insurance claim after it was forced to close in mid-March, but Travelers "swiftly" denied it coverage based on an unreasonable interpretation of the policy, leaving the small business in financial straits.

The complaint asserts a breach of contract and breach of implied covenant of good faith and fair dealing. It seeks to certify a California class of retailers who purchased comprehensive business insurance coverage but were denied coverage, ultimately eyeing damages, attorney fees and costs.

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Mudpie is represented by Eric H. Gibbs, Andre M. Mura, Karen Barth Menzies, Amy M. Zeman and Steve Lopez of Gibbs Law Group and Andrew N. Friedman, Victoria S. Nugent, Julie Selesnick, Geoffrey Graber, Eric Kafka and Karina G. Puttieva of Cohen Milstein Sellers and Toll PLLC.

The complete article can be accessed here.