Restaurant Lobbyists Seek Insurance Coverage for Lost Profits
As businesses are coming to terms with financial struggles caused by stay-at-home and shelter-at-home orders that have been implemented in response to the coronavirus pandemic, the hardest-hit business, including restaurant owners and lobbying groups that support them, are pushing Congress and President Trump to require that insurance companies cover business interruption claims caused by the coronavirus, even if those claims would normally be excluded from coverage under the policies.
Most commercial insurance policies cover claims for lost profits due to business interruption. However, these policies usually only provide coverage if physical damage to the policy holder’s property caused the business to close. Common examples are business closures following a natural disaster like a flood or a hurricane.
Many restaurant owners thought the situation posed by the current pandemic would be covered under their business interruption insurance, which covers a business’s lost income due to a disaster. But the scope of the pandemic and the size and number of potential claims has caused many insurers to deny coverage for business interruption claims. Insurance lobbying groups have estimated that insurance payouts for businesses with 100 employees or less could be as high as $431 billion, compared to annual premium payments of $71 billion.
Business Interruption Caused by Coronavirus Pandemic Could Result in Massive Insurance Payouts
Conceptually, insurance coverage spreads risk across a large number of policyholders. When losses are small, predictable, and experienced by a small number of policyholders, insurers pay the claims they reasonably expect to happen - things like auto accidents, trees falling houses, etc. But when policyholders nationwide file hundreds of billions of dollars in claims at the same time, insurers deny claims and policyholders take them to court. A recent example occurred when companies were sued for exposing workers to asbestos and other claims for environmental pollution.
Today, insurers are facing massive claims by businesses that have been closed due to the coronavirus and COVID-19 and government orders. Restaurants, bars, and other retailers have been particularly hard hit as most state governors have ordered that bars be closed and restaurants restricted to take-out orders only.
Insurers are concerned that paying all these business interruption claims at once could bankrupt the insurance industry. David A. Sampson, CEO of the American Property Casualty Insurance Association, estimates that small businesses would file approximately 30 million claims totaling losses of $220 to $383 billion per month - ten times the amount in claims ever handled by the insurance industry.
To protect themselves against having to pay these claims, insurers have raised various arguments for why business interruption does not cover lost profits due to the coronavirus pandemic. Some insurers are claiming that commercial insurance policies do not cover business interruptions caused by disease. Others are claiming that pandemics are uninsurable (even though there are insurance policies that specifically cover losses due to pandemics). And even if a policy does include pandemic coverage, there are questions about whether COVID-19 is a named disease under the policy.
In response, legislators in seven states, including Ohio, Massachusetts, New York, New Jersey, Louisiana, Pennsylvania, and South Carolina have introduced bills that would require that insurance companies pay claims for business interruption claims due to the coronavirus. Yet even if these bills are passed, they would face significant legal challenges and the ensuing litigation could take years, during which time the claims would not be paid.
Restaurateurs Are Taking the Fight to Washington
Restaurant owners and their lobbyists in Washington have asked federal lawmakers to require insurance companies to provide coverage for business shutdowns due to stay-at-home orders. The alliance of restaurant owners, calling itself the Business Interruption Group, or BIG, has started a campaign to lobby Congress to require that insurers pay business interruption claims due to the coronavirus shutdown and seek reimbursement from the federal government, even if those claims would not normally be covered.
In support of its position, BIG notes that restaurants provide more than 15 million jobs, making them the largest employer in the United States and responsible for approximately $1 trillion in contributions to the American economy.
BIG has reached out to federal lawmakers, prompting California Democrat Mike Thompson to sponsor a bill in the House that would require insurers to provide disaster coverage in the future.
President Trump seems to be siding with the restaurant industry and has urged his staff to give restaurants, bars, and clubs incentives to remain open. The President also appointed four restaurant owners to a task force on reopening the economy.
The restaurateurs have also asked the President to urge Attorney General William Barr to issue an advisory opinion setting that the coronavirus has created dangerous working conditions.
Recognizing the potentially catastrophic problems that could be caused if insurance companies have to pay out billions of dollars in business interruption claims, some members of BIG have proposed that the insurance companies should pay the business interruption claims then seek reimbursement from the federal government, even if the restaurants did not have insurance that would cover business interruption as a result of the pandemic.
Insurers contend that paying business interruption claims would be disastrous. Instead, the insurance industry wants the federal government to create a government-backed fund that would pay the claims directly.
The restaurateurs have gained support from other industries, including real estate investors who believe that businesses that are not covered under the rescue packages already passed by Congress will also need financial assistance. Because restaurants are unable to pay rent or have been forced to cancel leases, commercial landlords are also suffering financially.
Robenalt Law — Helping Small Businesses in Their Time of Need
As small businesses are fighting to stay afloat during these difficult times, they have turned to attorneys for help filing lawsuits asking courts to force insurance companies to pay claims for business interruption.
Ohio attorney Tom Robenalt knows all-too-well the lengths insurance companies will go to to avoid paying claims. He began his career as an insurance defense lawyer where he saw first-hand how insurance companies use the tactics of deny, delay, and defend to avoid paying claims. Today, he uses that experience to help people facing financial difficulties and who need help from the insurance companies who gladly took their money in premiums but now, in their hour of need, are refusing to make payments.
Tom Robenalt started his career as an insurance defense lawyer at a large firm in Cleveland. For the past 25 years, he has used that experience to help victims and their families recover from financial losses.
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