49BloombergBusinessweek November 9, 2020
rulethatthepresenceofa virusinsidea buildingentailsphysical
lossordamage,thenbusiness-interruptionpolicyholders might
havevalidinsuranceclaims.InthememoHoughtalingreceived
inMarch,ShannonO’Malley,a lawyerforthelawfirmZelle,
predictedthat“creativepolicyholders and their attorneys may
try to link the virus and physical property damage.” She argued
that because the virus “may be cleaned without essentially alter-
ing the property is evidence that there is no initial damage.”
In the Oceana Grill case, Houghtaling did exactly as O’Malley
had envisioned, casting the coronavirus as a physical threat—a
web of microscopic particles that comes to rest on surfaces,
rendering property unusable. And anticipating the industry’s
legal strategy, he and other advocates successfully lobbied pub-
lic officials in New York City and elsewhere to include phrases
such as “physical loss” and “physical damage” in shutdown
orders requiring businesses to close.
To Houghtaling, there’s no question the industry’s position
is self-serving. “If you ask them, ‘Is contamination physical?’
they start getting into arcane things like cat piss,” he says. “Do
you need to? Something that is small, that can go through the
air and contaminate and get into your nose and get you very
sick or kill your mother and father ... it’s physical.”
Since March scores of lawyers have made similar arguments,
demanding payouts for restaurants, studios, tattoo parlors,
salons, casinos, theaters, retailers, and sports franchises. But
not all business-interruption policies are the same, and many
of the lawsuits face considerable obstacles. John Ellison, an
insurance litigator who represents policyholders, estimates
that from half to two-thirds of business-interruption policies
contain “virus exclusions”—contract language stipulating that
losses caused by viruses aren’t covered. On their face, the exclu-
sions appear to rule out insurance payments for businesses that
close because of a pandemic. But in a lawsuit filed in California,
Ellison is arguing that such exclusions should be unenforceable.
This type of language dates to the SARS outbreak in the early
2000s, when some insurers were forced to make expensive pay-
outs to businesses in Asia that closed, such as the $16 million
paid to the Mandarin Oriental hotel chain. Afterward, repre-
sentativesfortheinsuranceindustrygotpermissionfromstate
regulatorstoaddpolicylanguageexplicitlyexcludingviruses
andother“disease-causing agents” from insurance plans. They
assured the regulators that the new language would not limit
the scope of coverage but merely clarify its original intent.
Ellison calls that request deliberately misleading—a ruse to
trick regulators into approving downgraded insurance plans
without requiring providers to lower prices accordingly. “You
didn’t reduce the premium, you didn’t provide the coverage
that you should have, by virtue of the misrepresentation,” he
says. “So we’re asking one court already, and we’re going to
beaskingothercourts,tonotallowtheinsurerstorelyon
exclusions that they obtained through a misrepresentation.”
The industry has responded aggressively to Ellison and
other litigators, hiring expensive law firms and deploying its
lobbyists to urge state legislators to abandon efforts to force
payouts. The Insurance Information Institute, a trade group,
introduced a website arguing that it would violate contract law
to force insurers to pay pandemic claims. “The plaintiffs’ bar is
always looking to expand coverage beyond what’s covered in
the policy language,” says David Sampson, chief executive offi-
cer of the American Property Casualty Insurance Association,
another trade group.
In April, Evan Greenberg, CEO of Chubb Ltd., one of the
world’s largest insurers, published an op-ed in the Wall Street
Journal arguing that lawsuits “won’t cure corona.” Houghtaling
was outraged. “He called us beggars,” he says, his voice ris-
ing. “That was too much for us.”
Greenberg, who declined to comment, had actually writ-
ten something much milder—that the litigation would repeat
the “beggar-thy-neighbor mistakes of the Great Depression.”
Still, in pursuit of vengeance, Houghtaling strategized with
the Simon Wiesenthal Center, a Holocaust research and advo-
cacy organization with an insurance policy from Chubb. The
group’s mission has a personal connection for Greenberg,
whose father, former American International Group Chairman
Maurice Greenberg, helped liberate the Dachau concentration
campduringWorldWarII.
Onbehalfofthecenter,HoughtalingsuedChubbinfederal
courtinCaliforniaonApril29,the75thanniversary of Dachau’s
liberation. “We found it very ironic,” he says. “That was really
a message we wanted to send to Evan Greenberg personally.”W
hile attending law school at Loyola
University New Orleans, Houghtaling
worked as an assistant at Gauthier &
Murphy, the local firm that spearheaded
the tobacco litigation of the 1990s. One
of the partners, Bob Murphy, remem-
bers asking Houghtaling to spruce up a 55-gallon chemical
drum Murphy planned to present at trial. It was menial work,
but Houghtaling managed to inject it with glamour. Leaving
the office one evening, Murphy ran into Houghtaling in the
parking lot, where he was spray-painting the drum, his suit
jacket draped over the door of a bright red Mercedes. “He defi-
nitely got my attention,” Murphy says.
Houghtaling ultimately became one of the most success-
ful trial lawyers at the firm, raking in tens of millions of dol-
lars from wrongful death and personal injury cases. He
represented a police officer disfigured by a fireworks explo-
sion on New Year’s Eve and handled the litigation stemming
froma deadlyboataccidentontheMississippiRiver.BySomething “that can go through the air and
contaminate and get into your nose ... it’s physical”