Lawsuit Disputes Modesto Inn’s Business Interruption Insurance Claim Denial


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A lawsuit filed in Stanislaus County Superior Court disputes a Modesto inn’s COVID-19 business interruption insurance claim denial.

The lawsuit was filed by Ramada Inn Modesto and named multiple Farmers Insurance entities as defendants. The complaint is seeking a declaratory judgment mandating that the Farmers entities honor a valid contract, as well as seeking damages based on breach of contract.

The complaint notes that Farmers’ website advertised that their policies help insureds replace lost income while their companies are shut down. The complaint also notes that Farmers was apparently aware of the importance of business interruption insurance, as their website said as much, noting their policies help closed businesses with lost profits, payroll, taxes and more.

The complaint argues the Farmers entities reflexively deny coverage with only their own profits in mind.

Definition Of “Direct Physical Loss” An Issue

Farmers entities are denying COVID-19 business interruption insurance claims because they are claiming that COVID-19 business shutdowns don’t constitute a physical loss, according to the complaint. The complaint argues that COVID-19 shutdowns are physical losses because using or accessing property is inherently physical in nature and thus preventing use or access to property constitutes a loss of a physical nature.

The complaint argues that the policy language covers any suspension of business operations that are the result of direct physical loss. The complaint implies Farmers entities chose not to define “direct physical loss” so they could exploit the lack of definition in order deny claims for the sake of their own profits.

Inn Basically Forced To Shut Down By State

The complaint states that the inn was essentially forced to shut down by state orders mandating that hotel workers stay at home unless the hotel is used for containment, treatment or mitigation of COVID-19. The complaint also states that the inn “incurred great expense” spending money on disinfectants, masks, bleach, Plexiglas and hand-sanitization stations.

Relief Claims

The lawsuit seeks the following:

Declaratory Judgment

The complaint seeks a declaratory judgment mandating that the Farmers entities honor the inn’s contract, bringing this cause of action under California Rule of Civil Procedure Section 1060 et seq.

Breach Of Contract

The complaint claims the Farmers entities breached the inn’s contract by wrongly denying their business interruption insurance claim, claiming the decision to deny the claim was solely based on the entities’ interpretation of the contract language rather than being based on any specifics or investigation.


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