The operator of an Oklahoma concert venue is suing its insurer for breach of contract for allegedly refusing to cover losses stemming from COVID-19 business closures.

The Vanguard, a nightclub in Tulsa’s historic district, is known for hosting live music performances. To protect against losses in case the venue had to close for reasons beyond their control, the company purchased Covington property insurance with added coverage.

The Vanguard’s all-risk Covington policy includes “Business Income” coverage, which promises to pay for losses due to necessary suspension of operations resulting from loss or damage to covered property; “Civil Authority” coverage, which promises to pay for loss if a civil authority prohibits access to the property; and “Extra Expense” coverage, which promises to pay expenses incurred to minimize losses from the suspension of business.

As part of that extra coverage, if a loss is incurred, policyholders are required to take reasonable steps to protect the property from further damage and to record those expenses for reimbursement as part of their claim. This is called “Sue and Labor” coverage.

Unlike many policies that provide Business Income coverage, the lawsuit points out that Covington’s policy does not state any exclusion for losses caused by the spread of viruses or communicable diseases.

The lawsuit notes “the policy only contains an ‘Exclusion of Pathogenic or Poisonous Biological or Chemical Materials,’ which are not defined in the policy. This exclusion only applies to an escape of contaminants from a place of containment, such as a storage tank or cell, not the natural spread of a virus.”

With the advent of the COVID-19 pandemic, civil authorities throughout the country and the world have ordered the temporary closure of a wide range of businesses to stem the tide.

According to an article in the Tulsa World, a city order shut down “places of public accommodations” March 17 as a safety measure during the COVID-19 pandemic.

Later, Oklahoma’s governor implemented a three-phase plan called Open Up and Recover Safely to reopen the state’s economy.

Under the statewide OURS plan, The Vanguard was allowed to reopen June 1 — but only if it complied with physical distancing guidelines encouraging 6 feet of distance between individuals. This is difficult if not impossible to enforce in such a small space, the lawsuit maintains; at best, The Vanguard cannot operate anywhere near its normal capacity until all restrictions are lifted.

Given the circumstances of The Vanguard’s closure and resulting losses, and given that the owners held up their end of the contract, they believed they were covered. However, when they submitted their claim, Covington denied it.

The Vanguard claims it’s not the only policyholder that has been blocked.

“Covington has, on a widescale and uniform basis, refused to pay its insureds under its Business Income, Civil Authority, Extra Expense, and Sue and Labor coverages for losses suffered due to COVID-19, any orders by civil authorities that have required the necessary suspension of business, and any efforts to prevent further property damage or to minimize the suspension of business and continue operations,” the complaint says.

The Vanguard is looking to establish eight national Classes to adequately address losses under each of the four categories of Covington coverage cited: Business Income, Civil Authority, Extra Expense and Sue and Labor.

The plaintiff seeks to create two Classes for each of these categories: a “breach” Class for businesses and entities that have had their claims denied by Covington after virus-related losses and a “declaratory judgment” Class for those who have such coverage through Covington and have suffered similar losses but have not yet made claims.

For members of the “breach” Classes, the plaintiff is asking for damages to be determined by the court for breach of contract. For members of the “declaratory judgment” Classes, the plaintiff is seeking proper reimbursement for such losses stemming from the COVID-19 pandemic.

A jury trial, court costs and “such other and further relief as may be proper” are asked for all eight Classes.

The Vanguard is represented by Mark A. Smith of the Caruso Law Firm and by Daniel E. Smolen of Smolen Smolen & Roytman PC.

The Coronavirus Business Interruption Insurance Class Action Lawsuit is Till Metro Entertainment, dba The Vanguard, et al. v. Covington Specialty Insurance Co., Case No. 4:20-cv-00255, in the U.S. District Court for the Northern District of Oklahoma.

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