Healthcare Provider Sues Insurer Over Denial of COVID-19 Business Loss Claims

Late last week, Palomar Health filed a complaint against American Guarantee and Liability Insurance Company (American Guarantee) for its failure to cover earnings losses Palomar sustained due to state-issued COVID-19 operating restrictions. The Southern District of California complaint explains that Palomar, a “governmental party,” operates several healthcare facilities that provide elective surgical services, women’s health services, cardiac rehabilitation, community health education classes, as well as a medical center gift shop.

According to the filing, American Guarantee is an insurance company that caters to healthcare providers, including Palomar. When the COVID-19 pandemic took hold in March 2020, Palomar was forced to comply with several California executive orders that limited its ability to conduct business, resulting in financial losses.

Specifically, the complaint states that Palomar suffered the loss of its “interest in the discretionary use of personal protective equipment and other resources, buildings, and facilities.” In addition, Palomar alleges, its usual activities, including elective surgical services, community health education classes, and gift shop operations, were suspended. Finally, portions of its facilities were rendered uninhabitable due to the threat of the spread of COVID-19, resulting in the slow down or cessation of business activity, the filing reports.

On Apr. 20, 2020, Palomar reportedly tendered notice of the losses to American Guarantee, seeking full coverage under its policy. After initial responsiveness, and a promised investigation into Palomar’s claims, an American Guarantee adjuster allegedly misled Palomar about certain claims’ coverage eligibility, and in particular, intoned that certain losses would not be covered.

Palomar claims it relied on the adjuster’s representations to its detriment, not only in deciding which claims to pursue and how, but also through several related business decisions. When, on Mar. 10 of this year, Palomar asked American Guarantee to agree to a tolling agreement to permit more time to process the claims, the defendant declined.

A week later, American Guarantee largely denied coverage to Palomar. Now, the plaintiff contends that the decision contravenes the explicit language of its policy, constituting a wrongful refusal of benefits. In addition, Palomar argues, the defendant’s negligent misrepresentations and mishandling of its claims amount to bad faith.  

The filing sets forth four tort and contract causes of action. Palomar asks that the court order American Guarantee to pay damages, the benefits due under the terms of its policy, and interest, among other requests.

The plaintiff is represented by Saxe, Doernberger & Vita, P.C.