Monarch Ballroom located in California has filed a class action lawsuit accusing Farmers Insurance and other insurance companies of denying business interruption insurance claims when the dance studio had to close due to COVID-19.

Monarch Ballroom alleges that it had to cease operations because of stay-at-home and shelter-in-place orders that required nonessential businesses to close because of COVID-19.

The plaintiff claims that despite the fact that it had an “All Risk” Standard Commercial Property Insurance Policy with Farmers, which provides for business interruption insurance, Farmers has denied its obligation to pay for business income losses and extra expenses incurred for the loss of property arising from the civil authority orders.

Monarch Ballroom is seeking a declaratory judgment holding that Farmers is contractually obligated to pay business income and extra expenses incurred due to the plaintiffs’ compliance with civil authority orders implemented to reduce the spread of COVID-19.

The plaintiff’s complaint states that the studio is owned and operated by David Estrada, who was a competitive dancer for 25 years and a dance instructor for 20 years. Monarch opened up its doors in August 2018 and has served as a dance studio for residents of the South Bay of Los Angeles.

The plaintiff notes that when the space is not being used for dance lessons, it can serve as an event space that can host up to 100 guests.

Monarch Ballrooms claims it has been closed since March 16, 2020, due to the COVID-19 civil authority orders issued by the state of California, the city and county of Los Angeles and the city of Torrance. 

“As a result of the COVID-19 Civil Authority Orders, Plaintiff has experienced significant business income losses and incurred extra expenses by having to cancel all private dance lessons, group classes, and event space rentals,” the Monarch Ballroom class action lawsuit states.

According to Monarch Ballroom, the policy issued to it is a standard commercial property “all risk” policy that covers all loss or damage to their covered premises, other than loss or damage that is expressly excluded.

The plaintiff claims its policy was effective as of June 8, 2018, and provides various coverages, including business income and extra expense coverage, which would indemnify the plaintiff for lost income and profits in the case its business was shut down.

“The interruption of Plaintiff’s and other class members’ businesses was not caused by any of the exclusions set forth in the applicable Policies, including Plaintiff’s Policy,” the Monarch Ballroom class action lawsuit goes on to claim.

The plaintiff also states it is unable to use its business premises for normal operations because COVID-19 civil authority orders were issued to prevent the spread of COVID-19 in the future, not because the virus was found on or in the vicinity of the plaintiffs covered premises.

Monarch Ballroom explains that their insurance policy also contains an exclusion of loss due to virus or bacteria, which includes “loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”

This virus exclusion, maintains the plaintiff, does not exclude coverage for the plaintiff’s business income and extra expense losses because the covered cause of loss was not bacteria or the coronavirus, but instead the prevention of the spread of COVID-19. 

Estrada claims he first reached out to his Farmers agent on March 16, 2020, to ask whether he could obtain coverage under his insurance policy for lost business income in the form of cancelled lessons, classes and venue rental. He states he filed a claim with Farmers on May 4, 2020, seeking business interruption coverage. A day later, he says, Farmers denied his claim.

“Farmers denied Plaintiff’s claim without any inspection or review of Plaintiff’s physical location and has thereby waived any right to do so at a later date,” the Monarch Ballroom class action lawsuit alleges.

In the formal denial letter, Farmers stated there could not be coverage because there is no direct physical loss of or damage to the property at the described premises from a covered cause of loss.

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The plaintiff is represented by James C. Shah, Jaclyn M. Reinhart and Ronald Kravitz of Shepherd Finkelman Miller & Shah.

The Monarch Ballroom Insurance Class Action Lawsuit is Monarch Ballroom LLC v. Farmers Insurance Company Inc., et al., Case No. 2:20-cv-05493, in the U.S. District Court for the Central District of California.

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