An Insurance Problem Too?
Terry H. Schwadron
Sept. 9, 2020
One mystery shrouded by coronavirus is popping up in courtrooms around the country.
Businesses that pay plenty for “business interruption” insurance are dependent on the federal government for their losses — not their insurers.
The question is why not, leading us to the impasse facing the government over finding stimulus money?
That is different from health insurance, of course, which is contributing to COVID-19 coverage.
The answer, as so often the case, is that business insurance doesn’t cover pandemics any more than it does earthquakes or floods or other catastrophes that actually might help the small (or large) business owner. Small businesses are seeing their claims denied repeatedly, along with a too-late written explanation that should have paid for special “pandemic insurance.”
In May, after the first 100 cases of thousands were filed in a single Philadelphia federal court against insurance companies, a petition began circulating among business owners to assign to a single judge all COVID-19 business-interruption lawsuits filed in federal courts. The panel was created in 1968 to determine whether civil actions pending in different federal districts involve one or more common questions of fact and should be coordinated or consolidated.
The central question for restaurants, bars, medical practices, child-care businesses and salons is whether novel coronavirus amounts to a physical loss of property that triggers insurance coverage for business income lost because of government-ordered closures.
When Gov. Andrew Cuomo ordered the closure of all non-essential businesses in New York, Dhruv Chopra and his partners were looking to open a new, 24,000-square-foot bar and performance venue called Elsewhere in Bushwick in 2017, he told The City, a New York city news outlet. Chopra applied for insurance, which he thought plenty expensive, and the company denied the claim. “The coverage is large enough that it’s supposed to cover lost sales during a short period of shutdown,” he said.
Lots of others did the same. “They paid for business interruption insurance for years,” said Olympia Kazi, who works with the NYC Artists Coalition to preserve community cultural spaces, told The City. “And then they hear that COVID-19 is not covered, it’s like the cherry on top of this whole mess.”
Multiply by the number of businesses affected across the country, and it is easy to see why this is a critical issue not only for the small business owner but for the insurance industry. The insurers say business-interruption policies were only intended for physical damage like fires and were never priced to cover a virus outbreak, and are opposing legislative efforts in New York, New Jersey, Massachusetts and elsewhere trying to require payments.
Even Donald Trump, perhaps unthinkingly, suggested during one of his earlier, meandering public appearances to talk about coronavirus, let slip that he believed insurers should help pay the huge cost of nationwide shutdown. Clearly, he has not acted on that.
A letter from 18 members of Congress to trade associations urged them to “work with your member companies and brokers to recognize financial loss due to COVID-19 as part of policyholders’ business interruption coverage.” But then seven Republican senators came to the insurance industry’s defense on Friday, essentially warning Trump in a letter about trying to change business-interruption policies
Indeed, insurance operations are controlled by states, not the federal government.
How Much is at Stake?
Companies with up to 100 employees or fewer could sustain losses of as much as $431 billion a month, the American Property Casualty Insurance Association estimated or nine times what the industry said it paid for covered losses from the 9/11 terrorist attacks, according to the Insurance Information Institute. Add larger companies and you have real money going out the door.
Needless to say, The Insurance Journal is filled with stories about lawsuits.
Just as with Hurricane Sandy, among others, the losses or damage might have been covered, but only if businesses had purchased extremely expensive pandemic insurance.
Business owners and interested legislators scoff at that, saying any protective language in contracts with small businesses was never meant to eliminate the effects of a global pandemic over which they had no control.
“Venues pay thousands of dollars a year to cover a crisis such as this,” Ariel Palitz, senior executive director for the Office of Nightlife at the Mayor’s Office of Media and Entertainment, told The City. “They are relying on the insurance industry and the federal government to help make their businesses whole.”