51BloombergBusinessweek November 9, 2020
humanhistory,fromtheslavetradetotheHolocaust.“Ilet
himrantandrave,”Badgersays.“I’lljumpinwhenI havea
pointtomake.”Beforethepandemic,Houghtalingheldtuto-
rialsforlawyersandcontractors,teachingthemhowtoavoid
whatheterms“Badgertraps”—clevermaneuversBadgerand
otherindustrylawyersusetowincases.Butthepairhavealso
becomefriends,andthesedaystheyspeaksometimesmulti-
pletimesa week,discussingthebusiness-interruptiondispute.
Thelitigationhasbeena boonforZelle.Intheearlyweeks
ofthepandemic,Houghtalingspreadthewordtoreportersand
governmentofficialsaboutthememodescribingtheinsurance
industry’splanstofightbusiness-interruptionclaims.“Itwas
greatmarketingforus,”Badgersays.“Peoplecalledusupwant-
ingthepaper.”Inthespringandsummer,thefirmwentona
hiringspree,addingeightattorneystoits75-person legal staff.
Houghtaling says he’s unhappy about the thousand-plus
surge of cases. Many of them, in his view, make flimsy argu-
ments centered on policies with virus exclusions, giving the
industry a chance to notch wins that could influence judges
in future cases or discourage policyholders from filing claims.
When he sees a flawed suit, he calls the lawyers who filed it,
urging them to reconsider. This rarely goes well. “Some of them
are making arguments that are completely stupid,” Houghtaling
says. “I don’t have control, as much as I’ve tried to.”
Over the summer, a group of plaintiffs’ attorneys, including
some from well-established firms, sought to consolidate hun-
dreds of the suits in one federal court. The tactic is often used
by plaintiffs’ lawyers, with the aim of limiting costs and pressur-
ing defendants. Unsurprisingly, the industry fought the consol-
idation. But it had some strange bedfellows: Houghtaling and
other veteran coverage litigators, some of whom argued in court
that variations in how business-interruption policies are writ-
ten made it unfeasible to consolidate so many disparate cases.
“It was very weird,” says Amy Bach, executive director of
United Policyholders, an advocacy group that usually battles
insurers. “We were on the same side as the insurance com-
panies. We’re surgeons on my team. We knew that there’s no
way it’s going to benefit policyholders to have everything con-
solidated.” A panel of judges rejected the consolidation effort,
though they ultimately approved a much narrower grouping
of some of the lawsuits.
Houghtaling says litigation is only one piece of his broader
strategy. He even withdrew the suit against Chubb (which had
filed a motion to dismiss) after the Simon Wiesenthal Center
decided to wait and see whether the company would make
a payment. In recent months, he’s been trying to persuade
Badger to work with him on a compromise—what he calls “my
grand scheme.” He’d like the insurance industry to support
legislation proposed by U.S. Representative Mike Thompson,
a Democrat from California, calling for the federal govern-
ment to reimburse insurers for business-interruption payouts.
“I want to convince Steve that HR7412 is good for him and his
clients—and good for everybody,” Houghtaling says.
Passing such legislation would be an uphill battle under
a Congress that hasn’t even been able to agree on a new
pandemic relief package. In any case, Badger isn’t interested
in the compromise. “I applaud John’s efforts to try to look for
some broader solution, but that solution cannot involve the
insurance industry agreeing to pay clients that are not other-
wise covered,” he says. “Every plaintiffs’ lawyer works on a
contingency fee, so if there is a program where the insurance
industry is paying claims that are not covered and they’re get-
ting reimbursed, there’s no doubt a percentage of that would
go to plaintiffs’ lawyers. Is that good policy?”
Houghtaling suspects the industry’s reluctance to compro-
misestemsfromitsearlysuccessinsomeofthelitigation.Over
thepastfewmonths,federaljudgesinCalifornia,Texas,and
severalotherstateshavedismissedbusiness-interruption law-
suits, albeit mostly ones involving virus-exclusion clauses. He’s
ebullient,though,aboutonerecentsuccess:InAugusta fed-
eraljudgeinMissourirejectedaneffortbyCincinnatiInsurance
Co.todismissa business-interruption case, ruling that a group
of plaintiffs led by the Studio 417 hair salon in Springfield had
“adequately stated a claim for direct physical loss.” When he
saw the ruling, Houghtaling texted Badger the iconic “Show me
the money” clip from Jerry Maguire.
Badger and Houghtaling agree that it will be a few more
months before it’s truly clear which side has the upper hand,
as more judges reach decisions in the first wave of cases. “If the
insurance industry wins most of them, I think that’ll take the
wind out of the sails of the plaintiffs’ lawyers, and it’ll probably
go away fairly quickly,” Badger says. “If the plaintiffs’ lawyers
start to get traction with victories, it could drag on for years.”
A yearslong legal battle might not be much help to struggling
businesses.InSeptember,theNewYorkretailchainCentury 21
Storesfiledforbankruptcy,citingitsinsuranceprovider’s
refusaltopay$175millioninbusiness-interruptionclaims.And
almost20,000restaurants have already closed permanently
becauseofthepandemic,accordingtodatacompiledbyYelp.
“Itsaddensmetodeath,”saysThomasKeller,a renownedchef
inCaliforniawho’ssuedhisinsureroverbusiness-interruption
coverage. “It’s an enormous amount of employees in busi-
nessesindireneedofsometypeofprotection.”
Thepandemichasalsotakena tollonsomemajorinsur-
ancecompanies.Chubb,forexample,reported$1.2billion
insecond-quarterlossesstemmingfromthecrisis.Others
arefaringbetter.TravelersCos.saidinOctoberthatits
pandemic-related losses were being offset by favorable trends
linked to lockdowns, as people stayed at home and got into
fewercaraccidents.AndCincinnatiFinancialCorp.,thepar-
entcompanyofCincinnatiInsurance,announcedprofits
of$484million for the third quarter, almost double what it
earned over the same period last year.
For all his personal wealth, Houghtaling considers himself
the underdog in this fight. “If I hit them 1%—enough to buy
a fleet of Ferraris and a private jet and houses all over and a
humongous mansion with tens of millions in antiques in it—they
don’t care. It’s a drop in the bucket,” he says. “I’m a nobody.
I’m not a microscopic something on a gnat. I’m nothing.” <BW>
�With Katherine Chiglinsky