Insurance companies are in an awkward position these days.

On one hand, they definitely don't want to pay out billions in COVID-19 business interruption claims. But (if possible) they also don't want to look like heartless bad guys refusing to save, say, a beloved small business run by a pillar of the community—or to fuel calls for legislative intervention as a result. 

Which is why a declaratory judgment suit filed Monday by Gibson, Dunn & Crutcher's Ted Boutrous on behalf Travelers Casualty Insurance Co. is sort of brilliant.

Because hmmm who could Travelers use as a test case for denying coverage without alienating large swaths of the public? 

How about Geragos & Geragos—the firm led by high-profile Los Angeles litigator Mark Geragos?

In fairness, Geragos & Geragos —which is known for plaintiffs-side personal injury, class action and civil rights cases, as well as criminal defense work on behalf of clients including Michael Jackson, Chris Brown and Gary Condit—started the fight.

Earlier this month, firm lawyers (plus the Dhillon Law Group) filed multiple suits against Travelers in Los Angeles County Superior Court. They're seeking declaratory judgments that Travelers is on the hook for business interruption coverage. 

Among the plaintiffs: the firm itself as well as Geragos personally in his capacity as a commercial landlord. 

Technically, Geragos & Geragos as a law firm is considered an essential business and hasn't had to close. But the Geragos lawyers argue that "access to and business in connection with plaintiff's insured property has been greatly limited and suffered immensely … Plaintiff has been forced to deal with a substantial loss in business traffic and client / law related business activities."

In the suits, the Geragos lawyers argue that the coronavirus is "a cause of real physical loss and damage," noting that "the virus is detectable up to three hours in aerosols, up to four hours on copper, up to 24 hours on cardboard boxes, and up to three days on plastic and stainless steel. Notably, the most potent form of the virus is not airborne but rather present on physical surfaces."

That "physical loss and damage" is a key component to invoke property insurance coverage.

Moreover, they argue that the firm's insurance policies cover "the actual loss of business income … incurred when access to the scheduled premises is specifically prohibited by order of Civil Authority."

For that reason, the suits also name Los Angeles mayor Eric Garcetti, who on March 15, 2020 ordered all non-essential businesses in the city to close. That order "constitutes a prohibition of access" which triggers insurance coverage, the Geragos team argues.

On Monday, Travelers hit back, filing what is believed to be its first lawsuit asking a court to declare that the insurer has no obligation to cover claimed losses of business income related to the pandemic. 

"Travelers understands that the COVID-19 Pandemic has affected the public and the vast majority of businesses throughout the country (and world) in unprecedented ways. But these challenging and unfortunate circumstances do not create insurance coverage for losses that fall outside the terms of a policyholder's insurance contract," wrote Boutrous, along with Gibson Dunn partners Richard Doren and Deborah Stein, plus co-counsel Stephen Goldman and Wystan Ackerman of Robinson & Cole in Hartford, Connecticut, in the complaint filed in Los Angeles federal court. 

The policies require "direct physical loss or damage" to property, the Travelers lawyers argue, and "the presence or suspected presence of a virus does not constitute the requisite 'direct physical loss or damage.'"

It's a question that's likely to occur across multiple insurance disputes, and Boutrous argues that the "presence of SARS-CoV-2 on a surface would not cause physical damage to that surface."

Any suspension of operations at Geragos & Geragos was not "caused by direct physical loss of or damage to property at the described premises," Boutrous writes. 

Moreover, even if there was the requisite "direct physical loss of or damage to property," he argues that the firm's specific policies exclude "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." Which is a pretty good description of COVID-19.

Geragos in a tweet on Tuesday countered that "Travelers insurance after cashing our premium checks for years decided yesterday that instead of paying our Business Interruption claim that they would hire a large law firm to sue us in Federal Court instead. Apparently, their way of adapting to a Pandemic is filing lawsuits against their own insured. We welcome the opportunity to fight on behalf of small businesses against rank corporate greed and their legal enablers."

Boutrous in an email responded, "This is an enormously difficult situation for individuals and businesses and Travelers is committed to paying covered claims, but it simply can't pay for losses that a policy expressly excludes. If the company is going to honor its promises to policyholders for the risks they have paid premiums for and insured against, then it has to protect the integrity of its contracts."