Many restaurant and bar owners invested in business interruption coverage in case there is a forced shutdown to a business. Here in California, the thinking was that the closure would be due to a fire. Of course, this catastrophe has now come to pass with the spread of the coronavirus causing COVID-19. Policyholders took comfort once the shutdown occurred because they thought they could get money from their carriers to pay bills and payroll.
Many were not surprised that the virus was dangerous, and the government’s response would be insufficient, but the policyholders were shocked when carriers denied claims over businesses shut down.
This has led to a wave of lawsuits, often by small businesses, seeking to speed up insurance claims and contending breach of contract and bad faith in handling claims. The plaintiffs argue that viruses or viral pandemics are not listed in their policies as exclusions from coverage. The argument is that if the insurance company does not pay for viruses or viral pandemics, they should have put it in the policy.
Too large to fail?
However, if the companies pay these claims, it would likely mean a seismic shift in the insurance market – and costs are eventually pushed back onto the consumer. The companies also cite a lack of physical damage to property, which is what the policies are supposed to cover.
A potential class action?
There are many lawsuits around the country. Some are seeking a class action by transferring them to the Northern District of Illinois, where a judge hears a high profile case filed by a group of Chicago-area restaurants and theaters. This group also claims that their claims were denied, but also done so with little or no investigation of the facts, which is a violation of their obligations.
Government may step in
There is currently a federal bill called the Pandemic Risk Insurance Act. Already getting support from some politicians, the bill would put the federal government as a backstop if insurance companies’ payments exceed $250 million. This is similar to a previous law from 2002 known as the Terrorism Risk Insurance Act, which passed after the September 11 attacks.
Legal guidance can help get answers
The coronavirus’s full impact on the hospitality industry will likely take years to determine. However, carriers or businesses with policies may wish to discuss their coverage with an attorney experienced in handling issues related to restaurants and bars.