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BloombergBusinessweek November 9, 2020J
ohnHoughtalingwasworkinginthesecond-floor
denofhismansionneartheGardenDistrictinNew
Orleanswhena legalmemoarrivedinhisemail
inbox.It wasmid-March,notlongbeforethepan-
demicshutdownmuchoftheU.S.,andcooksin
whiteapronsweredownstairspreparinganextrav-
agantdinner:lobstercasserole,vealchops,searedfoiegras.The
celebritychefJérômeBocuse,a closefriend,wouldbeattend-
ingthatevening,alongwithtwodozenotherguests.
Seatedona velvetcouchbeneathan18thcenturypaintingof
LouisXV,Houghtaling,a plaintiffs’lawyerwho’slongspecial-
izedinsuingtheinsuranceindustry,scannedthememoonhis
screen,growingincreasinglyagitated.The10-pagedocument,
compiledbya lawfirmthatrepresentsmajorinsurancecarri-
ers,wascirculatingamongindustryinsiderswhowereantici-
patingthatlocalgovernmentswouldsoonbeginshuttingdown
commercebecauseofthenovelcoronavirus.Thememoout-
lineda seriesofargumentstheprovidersplannedtomaketo
avoidpayingvirus-relatedclaimsfrombusiness-interruption
coverage—policiescompaniespurchasetohedgeagainstfires
andothercatastrophes.
Thechefsdownstairsmightsoonlosetheirlivelihoods,
Houghtalingrealized,andtheinsuranceindustrywouldrefuse
tohelp.Hisnextthoughtwas,headmits,a selfishone:“This
partyis gonnaf---ingsuck.”
Sureenough,earlyintheevening,ChefBocusegota call:
HistworestaurantsatWaltDisneyWorldwerebeingshut
down.Whenhehungup,however,hewassanguine.“We
checkedthepolicy,”heassuredHoughtaling.“We’regood.”
Houghtalingwasskeptical.“They’renotgoingtopay,”
hesaid.
“Yeah,yeah,”Bocusereplied.“Youalwayssaythey’renot
gonnapay.”
Thenextfewdayspassedina seriesoffranticphonecalls.
Othercelebritychefs,includingDanielBoulud,anotherfriend
ofHoughtaling’s,vowedtoexaminetheirpoliciesanddiscuss
theissuewithcolleagues.OnMarch16,lessthana weekafter
thedinnerparty,Houghtalingfileda petitioninstatecourtin
LouisianaonbehalfoftheNewOrleansrestaurantOceanaGrill,
askinga judgetodeclarepreemptivelythatitsinsurancepolicy
wouldcoverdamagecausedbythevirus.
Thesuitrepresentedtheopeningsalvoinwhathasbecome
thesinglebiggestlegalbattletoemergefromthepandemic.
Facedwiththeworstbusinessinterruptioninlivingmem-
ory,theinsurancegiantshave,byandlarge,refusedtopay
business-interruption claims. U.S. plaintiffs’ lawyers have filed
more than 1,100 complaints against insurers, according to a tally
by Tom Baker, a law professor at the University of Pennsylvania.
The stakes are enormous. Business owners from small
restaurants to major retailers say they could go bankrupt unless
they’re paid. Insurance companies say the payouts could crip-
ple them—one industry estimate looking at just U.S. small busi-
nesses with fewer than 100 employees places the total monthly
cost of reimbursing their pandemic losses at between $52 billion
and $223 billion. The dispute is also playing out in Congress andstatelegislatures,wherebillshavebeenintroducedrequiring
insurers to pay for pandemic-related losses.
“The word ‘unprecedented’ is probably overused in this,
but I don’t think I have another word for it,” says Henry Daar,
an executive vice president who oversees property claims for
insurance broker Willis Towers Watson. “There have been
huge insurable events in the past, with billions of dollars at
issue. All of those involved situations that affected a discrete
area and a discrete number of companies. This pandemic has
affected everybody.”
Houghtaling has spearheaded the legal offensive from his
mansion. Since March he’s challenged three major companies
incourtandformeda lobbyingcoalitioncalledtheBusiness
InterruptionGroup,whichis pressinglawmakersinCongressto
passa billrequiringinsurerstopaycertainvirus-relatedclaims.
HisOceanaGrillcaseis scheduledtogototrialonNov.16,in
oneofthefirstmajortestsofCovid insurance law.
A bow-tie-wearing 49-year-old bon vivant with slicked-back
hair, Houghtaling has a taste for luxury and a penchant for
grandiosity. He often toggles between metaphors to describe
his fights with the insurance industry, as if groping for an
appropriately epic comparison. Sometimes he’s David, val-
iantly challenging Goliath. Other times he’s Batman, battling
villains in Gotham City.
The night of the party, he says, he felt more like a passen-
ger on the Titanic. He sat next to Bocuse at a long mahogany
table, a candlelit chandelier hanging overhead. There were
towering flower arrangements and a cake shaped like a go-kart
helmet in honor of Bocuse’s son, a professional racer. A band
marched through the house, singing and dancing.
Houghtaling could already tell it was the last party he’d host
for a long time. “The whole thing is sinking,” he thought.A
bout a decade before Covid-19 upended daily
life, Doug and Gayle Mellin moved into a con-
dominium in the small town of Epping, N.H.
They soon encountered a problem: the perva-
sive stench of cat urine. The smell originated in
a downstairs unit and rose through the plumb-
ing system, drifting into the Mellins’ apartment from behind
a set of kitchen cabinets. The couple sold the condo at a loss
and went to court to force their insurer, Northern Security
Insurance Co., to cover the difference, arguing that the odor
constituted “direct physical loss to the property.”
For years, insurance companies and policyholders have
debated the meaning of the phrases “physical loss” and “phys-
ical damage,” the standard formulations governing which
types of harm are covered. In 2015 the Supreme Court of New
Hampshire found that the Mellins’ property had suffered phys-
ical loss, ruling that such harm can exist even “in the absence
of structural damage.” But in other states, courts have adopted
much narrower interpretations, arguing that “intangible harms”
like a stench don’t amount to physical contaminants.
Arcane contractual disputes such as this could now deter-
mine the survival of thousands of American businesses. If courts