Plaintiffs attorneys are looking deep into the weeds for evidence to support claims for business income lost because of COVID-19 public safety orders.

Lawyers for footwear wholesaler Marc Fisher LLC and its affiliates are asking a Connecticut state court to order the Insurance Service Office to produce documents relating to its 2006 regulatory filing that created a standard-form virus exclusion. A Tampa-based policyholder attorney known for his frequent blogs and webcasts has filed similar requests, and he is urging other plaintiffs attorneys to subpoena ISO as well.

“We cannot allow insurance defense attorneys to argue out of coverage that their clients’ own internal manuals and documents show exist,” Chip Merlin wrote in a May 19 post on his Property Insurance Coverage Law Blog.

Marc Fisher, also known as Moda, is hoping to collect $100 million from Hartford Fire Insurance Co. for business income that it lost because of pandemic-related civil orders that shut down its retailers. The Connecticut-based company contends its two insurance policies don’t have any viable virus exclusions, and its lawyers intend to show that The Hartford and other carriers knew that policyholders would expect coverage for virus damages if there was no specific exclusion.

The definition of “direct physical loss” is central to Fisher’s claim. The company’s lawyers with the Finn Dixon and Herling law firm in Stamford aim to prove that The Hartford wrongfully denied a business interruption claim that was payable under both a package and a marine policy. They say they are entitled to background information from ISO that may shed light on whether the insurer considered virus contamination to be a potential direct physical loss.

Fisher’s lawyers entered into evidence several documents that suggest at least some in the ISO knew that virus contamination can cause a direct physical loss in the minds of policyholders. Notes of an ISO committee meeting quote a staff member as stating: “I think an insured would have a reasonable expectation of coverage if ordered to cease business by government authority.”

The Hartford counters that the Fisher policy unambiguously excludes virus-related losses and urged the court to reject “irrelevant third-party discovery.” The carrier argues that Fisher is entitled to examine only documents that are held within the claim and underwriting files.

Waterbury Judicial District Judge Barbara N. Bellis has scheduled a June 23 hearing on the case. She instructed the parties to prepare oral arguments on Fisher’s motion to compel the ISO and The Hartford to produce documents.

Merlin cheered on Fisher’s lawyers in two blog posts last month. He wrote that the “secret ISO documents” need to see the light of day.

During a telephone interview, Merlin said his law firm has also asked ISO to produce documents relating to its 2006 virus-exclusion filing.

Merlin said the documents found so far show that ISO members discussed a potential coronavirus pandemic in 2004 and 2005. At that time, the first cases of severe acute respiratory syndrome had been detected related to an earlier version of coronavirus, putting public health officials on alert worldwide.

Merlin said defense attorneys started saying that insurers never intended to provide coverage for a coronavirus pandemic almost as soon as the first U.S. cases of SARS-CoV-2 were reported.

“They can say that all day long, but really?” he said. “They didn’t have an exclusion, and why did they create an exclusion in the first place?”

Policyholder attorney John Shugrue, a partner with Reed Smith in Chicago, said insurers have a history of telling regulators that losses caused by certain kinds of perils are not covered, even while filing exclusions to ensure they never can be.

Shugrue said when insurers started suffering major losses from pollution claims in the late 1960s, the ISO’s forbearers created a pollution exclusion in commercial general liability policies that provided coverage only for “sudden and accidental” releases. He said rating organizations told regulators that the new language would not seriously limit coverage for pollution because virtually all pollution releases were intentional and not covered anyway.

As it turned out, there was an explosion of litigation over pollution claims because policyholders thought they were covered, and some won lawsuits against insurers when courts interpreted “suddenly” to include leakages that seeped out over time. Wisconsin environmental issues attorney David Dybdahl wrote for IRMI.com that “pollution exclusions are the most litigated words in the history of insurance.”

Shugrue said the industry’s misrepresentations were so severe that the New Jersey Supreme Court called out the industry in a 1993 decision, titled Morton International v. General Accident Insurance Co. The court said the Insurance Rating Board and the Mutual Insurance Rating Board had submitted memorandums to regulators that grossly understated the impact of the language.

“To characterize so monumental a reduction in coverage as one that ‘clarifies the situation’ simply is indefensible,” the court said.

The court refused to enforce the policy as written because doing so would contravene public policy to regulate the insurance industry in the public interest. The unanimous ruling held that insurance companies must provide coverage to insureds under standard form commercial general liability policies for unintentional pollution, even if the pollution occurs gradually.

As it turned out, the victory for policyholders didn’t help Morton because the Supreme Court found that the company had intentionally released pollutants, which was clearly not covered even without the “sudden and accidental” policy language.

Shugrue said the ISO documents that have been turned up so far suggest that similar documents may exist to show that the industry misrepresented its intentions to state regulators when it created the virus exclusion.

“There is some interesting material in these internal documents,” he said. “It looks like there is certainly some smoke there and maybe some fire.”

(This article was originally published on Wells Media sister site Claims Journal. Reporter Jim Sams in the Editor of Claims Journal.)