By Daphne Zhang

Law360 (May 15, 2020, 6:27 PM EDT) -- A legal service company with offices in Philadelphia, New York and Chicago is suing Hartford Fire Insurance Co., claiming it wrongfully denied coverage for business income losses because of state-mandated closures during the COVID-19 pandemic.

In a suit filed Wednesday in the Philadelphia County Court of Common Pleas, Magna Legal Services LLC said Hartford violated the terms of the business insurance policy by refusing to cover the more than $50,000 in damages it experienced since the government-ordered shutdowns. The company claims its all-risk policy covers all physical loss and damages unless specifically excluded.

Hartford "arbitrarily" rejected Magna's claim by asserting that revenue loss stemming from the pandemic is excluded, according to the suit. However, the policy promised to pay for income loss when access to the insured's property is specifically forbidden by civil authority order, Magna said in the suit.

Magna ceased business operations in their offices across the country on March 16 following the state-mandated closures. The company said it has suffered substantial business loss since its customers have also halted or restricted business activities. Magna provides court reporting, jury consulting and graphic design for trials, law firms, corporations and government agencies.

"Magna's business is heavily dependent on law firms, corporations and government agencies across the country, whose operations have also been interrupted by civil authority orders," the company said, adding that its business is not only suspended by "civil authority orders closing non-essential businesses, but also court orders closing the courts. "

The policy also covers business suspension following direct physical loss or damage resulting from "necessary interruption," Magna said in the suit, and has additional coverage for losses caused by "bacteria and viruses," which falls into the category of damages the company incurred because of COVID-19.

By denying coverage, Hartford is shirking its obligations while it continues to take in premium payments from businesses it refuses to cover, the company alleged.

"Excluding coverage as asserted by Hartford is moreover against public policy and contrary to applicable laws and regulations governing the insurance industry," Magna said in the suit.

According to the complaint, Magna is also accusing insurance broker Nottingham Agency Inc. and employee Jonathan M. Crook of negligence and misrepresentation of insurance contract information. The broker and its agent never explained that the Hartford policy Magna purchased excluded coverage for "losses related to viruses, pandemics or related orders of civil authorities," the complaint said.

Magna said it entered into the policy on March 7 with a one-year policy period, and it was in full effect a week later when state and local authorities issued orders to shut down nonessential businesses, according to the suit.

The company claimed it had "a reasonable expectation" in purchasing the policy that it would cover a civil authority closure order during a public health emergency, such as the COVID-19 pandemic.

Magna is asking the court to hold that Hartford should pay for all business interruption losses because of the government closure orders and the COVID-19 pandemic, as well as attorney fees and damages to be determined in a jury trial.

A spokesperson for Hartford declined to comment on the lawsuit. Counsel for Magna could not immediately be reached for comment Friday.

Magna is represented by Stewart L. Cohen, James P. Goslee, Robert L, Pratter and Eric S. Pasternack of Cohen Placitella & Roth PC.

Counsel information for Hartford was not available.

The case is Magna v. Hartford Fire Insurance Co. etal. case number 200500735, in the Court of Common Pleas, Philadelphia County.

--Editing by Amy Rowe.

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