CINCINNATI — Cincinnati Financial Corp. has spent $30 million on lawyers in the last year, as it fends off 169 lawsuits aimed at forcing it to pay business interruption claims by companies forced to close during the coronavirus pandemic.
One of those lawsuits was filed by Taste of Belgium owner Jean Francois Flechet, who remains a Cincinnati Financial customer as he pursues a class-action lawsuit against the company.
“We just disagree on the interpretation of one paragraph on the contract,” Flechet said. “They’re protecting their interest. I’m protecting mine.”
Flechet’s lawsuit is on hold as the Ohio Supreme Court prepares to rule on a central legal question in business interruption cases.
In the meantime, the WCPO 9 I-Team has been analyzing another kind of legal spending.
For more than a decade, Cincinnati Financial employees and business partners have been a reliable campaign funding source for Republican justices.
“It would be very sad if a political contribution would have an impact on the decision,” Flechet said. “That’s what you would expect in a banana republic, not in the U.S. I think I have more faith than that in the justice system.”
A spokesman for the Ohio Supreme Court said justices are not able to comment on pending cases. Cincinnati Financial declined interviews for this report.
“We respect the rights of all parties to have their issues heard and resolved in a court of law. For that reason, we do not comment on pending litigation,” spokeswoman Betsy Ertel said in an email response to the I-Team’s questions. “Cincinnati Insurance remains committed to doing our part to support the families and businesses in our agents’ communities, helping them to proactively manage risks and promptly paying covered claims.”
But an attorney who asked five of the seven Ohio Supreme Court justices to recuse themselves over campaign contributions in 2015 said he remains troubled by Cincinnati Financial’s involvement in judicial campaigns.
“It’s kind of an ugly part of our business, the way we elect judges,” said Brett Goodson, a personal injury lawyer who lost two Ohio Supreme Court rulings to Cincinnati Financial attorneys in 2017 and 2018. “Why would anybody give money to a Supreme Court justice unless they thought that there was going to be some favorable ruling?”
Goodson represented a construction worker who was injured when a floor collapsed during a 2012 concrete pour at Cincinnati’s downtown casino. Cincinnati Financial defended claims against construction companies Goodson tried to sue for negligence. The Supreme Court ruled Ohio workers’ compensation laws prevented those self-insured companies from being sued.
In a 2015 affidavit, Goodson said five of the justices reviewing that case received more than 5% of their campaign funds from Cincinnati Financial employees or business partners. All five denied Goodson's request for recusal. Four of the five ruled against his arguments in a 2017 decision.
“I felt very strongly at the time and I still feel strongly about the issue,” Goodson said. “I just don’t want anybody to feel like they’re not going to get a fair trial or a fair judgment based on what the other party has done.”
Six years after Goodson's recusal request, Cincinnati Financial remains a big donor for Republican justices.
Three of the seven current justices received a combined $141,000 since 2016 from employees of Cincinnati Financial, Cincinnati Insurance Co. or Schiff Insurance, whose CEO, Thomas R. Schiff, has been a Cincinnati Financial board member since 1975, according to a WCPO 9 I-Team analysis of campaign contributions.
The contributions amounted to 1.75% of Justice Sharon Kennedy campaign contributions in 2020. In 2016, they represented 5.6% of the contributions in Justice Patrick DeWine’s successful campaign and 8.9% of Justice Patrick Fischer’s campaign war chest.
Chief Justice Maureen O’Connor, who ran unopposed in 2016, received no contributions from Cincinnati Financial in her most recent campaign. But in 2015, Goodson said she “received $46,050 from Cincinnati Insurance Co. and related entities” in 2010, contributions that amounted to 5.12% of her donations in that campaign.
“Put yourself in the position of the litigant that’s opposing Cincinnati Financial,” Goodson said. “Even if the judges aren’t unfair, it appears to be unfair. And that is sufficient grounds for them to recuse themselves.”
High-stakes litigation
The insurance industry is on a roll in its defense against pandemic claims, according to data compiled by University of Pennsylvania Law Professor Tom Baker.
His Covid Coverage Litigation Tracker shows insurers won “full dismissal with prejudice” orders in 79% of the 502 cases decided to date. Through July 26, Baker counts 1,982 cases filed. State courts have been friendlier to policyholders, granting full dismissal in 58% of cases, compared to 85% in the federal system.
“The overwhelming majority of trial courts from across the country continue to apply the policy language as we had anticipated,” CEO Steven Johnston told Wall Street analysts July 28. “We believe our policy language requires direct physical loss or damage to properties to trigger coverage … and that the virus does not cause direct physical loss or damage to property.”
Cincinnati Financial is “in a very unusual situation in that they have, I believe, hundreds of thousands of business interruption policies outstanding and they lack the viral exclusion that is standard for this” kind of coverage, said Paul Newsome, senior research analyst for Minneapolis, Minn. -based Piper Sandler Cos.
Newsome recently increased his rating on Cincinnati Financial stock – predicting it would rise to $116 per share in the next 12 months instead of $110 – because of the industry’s success in courtrooms across the country. But if Ohio reverses that trend, he thinks Cincinnati Financial could be among the industry’s biggest losers.
“The number theoretically could be in the billions,” Newsome said. “People were throwing around a $4 billion estimate (early in the pandemic) in an absolute worst-case scenario. We don’t really know for certain because we don’t know the average policy (size).”
Cincinnati Financial has increased its financial reserves by nearly $1 billion since the end of 2019 – to more than $7 billion as of June 30. The company wouldn’t say how much of the increase is due to the risk of litigation. Its 169 lawsuits rank third among all insurers, behind Hartford Financial Services Group Inc. with 248 cases and Zurich Insurance Group Ltd. with 180, according to Penn Law’s litigation tracker.
The Ohio case could influence the outcome of lawsuits across the country because of the state’s reputation as an industry hub, with more than 200 insurers based here.
“This applies initially just to Ohio,” Newsome said. “But Ohio tends to be a state that other insurance regulators do look to.”
In addition, the Ohio Supreme Court has been asked to settle a question of law that is central to most of the cases pending in federal and state courts. It’s a question posed by U.S. District Judge Benita Pearson in Cleveland:
“Does the general presence in the community, or on surfaces at a premises, of the novel coronavirus known as SARS-CoV—2, constitute direct physical loss or damage to property; or does the presence on a premises of a person infected with COVID-l9 constitute direct physical loss or damage to property at that premises?”
Pros and cons
More than a dozen companies and trade groups weighed in on the topic by Aug. 23, when the Ohio Supreme Court closed the window on legal arguments for and against Cincinnati Financial’s position. The court hasn’t scheduled oral arguments and has given no indication on how quickly a ruling might come.
But a review of the filings makes it clear that insurers are trying to limit the court’s review to whether the virus caused physical damage to properties while policyholder advocates want the court to take a broader view.
“At the very least, the policy is ambiguous, and ambiguities must be resolved in favor of the policyholder,” wrote attorneys for the Queens Tower and Taste of Belgium restaurants. “The Ohio Supreme Court is not in the business of saving companies who market and sell broad insurance policies.”
The Ohio Restaurant Association urged the court to consider the impact of government-imposed shutdowns of non-essential businesses.
“The orders dispossessed restaurants of their tangible spaces and forced very real, visible, material harmful physical changes to their property,” the filing states. “Yet insurance carriers have refused coverage and issued blanket denials without just cause.”
The Ohio Insurance Institute urged the court not to consider such side issues.
“It would be absurd if coverage could be triggered for a business that might have to curtail its operations to comply with a noise ordinance or bans on the sale of alcohol on Sunday,” said the institute’s filing. “Or even labor shortages which induce a shut-down. Or how about a strain of influenza that might prove to be particularly virulent or harmful. The law in Ohio is well-established with respect to the interpretation of insurance contracts: a court has an obligation to give plain language its ordinary meaning in the context of the policy and to refrain from rewriting the contractual agreement of the parties or creating absurd results beyond the intent of the parties under the guise of finding the policy to be ambiguous.”
Cincinnati Financial policyholder Neuro-Communication Services Inc. asked the court to consider the insurer’s lack of a virus exclusion in its policy.
“Cincinnati’s decision to not include a widely available virus exclusion form is telling,” wrote attorneys for the Youngstown-based audiology practice. “Cincinnati, along with many other insurers, sell policies that expressly exclude viruses, and there were extensive efforts by insurance industry groups to include virus exclusions in property insurance policies after the SARS epidemic nearly 20 years ago. But no virus exclusion is present here.”
Cincinnati Financial urged the court to ignore that question as “an attempt to escape the only common sense reading of the policy …. As a matter of law, these materials are not pertinent here. This Court identified the legal question it wants to be briefed and in doing so tracked precisely the legal question posed by Neuro’s claims and the policy’s clear terms.”
Back at the Taste of Belgium, Flechet is hoping Ohio’s seven justices see things his way – including the four Republicans whose campaigns his insurer helped to finance.
“I did not get shut down by a virus,” Flechet said. “I got shut down by a government authority. And I have a policy where there is a business interruption clause that says that I am covered in case a government authority decides to shut us down, because that is something that is outside my control.”
