Businesses battle insurance denials
Insurers claim policies don’t cover pandemic
Yuka Ioroi thought she couldn’t possibly get any more stressed. In the middle of weathering the financial hit of shutting down the dinein portion of her restaurant, and trying to keep her staff employed, she finally heard back from her insurance provider. They denied her claim for business interruption insurance.
“I couldn’t believe it,” said Ioroi, coowner of Outer Richmond restaurant Cassava. “Things are becoming dire; customers are spending less each week. If there’s a time for interruption policy to kick in, it’s now.”
Some small businesses are grappling with the harsh reality that they may be ineligible for business interruption insurance despite a neartotal shutdown during the coronavirus pandemic. Bay Area counties are enforcing shelterinplace orders until at least May 3. Restaurants, deemed essential businesses, can offer only delivery and takeout services until the order lifts.
Companies that have business interruption insurance can file claims if they’re displaced by an emergency or have operations halted because of fires or natural disasters that cause physical damage. The coverage can pay for losses, including income and
employee wages, depending on policy and carrier. But some insurance companies are doubling down on denials, fearing the payout could be too costly with thousands of businesses lining up to file claims simultaneously.
Ioroi said her business saw a 36% loss in revenue in March, down to $70,000 from an average of $110,000 the previous month. The restaurant is on track to see more losses, she said. Her insurance company, the Hartford, in Lexington, Ky., stated in a denial letter that her policy doesn’t cover the loss of business income because, “No direct physical loss or damage has occurred to property.”
Hartford declined to comment for this story. The insurance company is also embroiled in a lawsuit filed by Thomas Keller, the famed chef behind the French Laundry. According to court documents, the lawsuit asks the court to decide whether Keller’s business interruption policy allows him to recover losses amid the coronavirus outbreak.
“It’s infuriating that they’re cherrypicking rules,” Ioroi said of the insurance providers. “My business shut down because of a government order, an emergency. That should be enough for me to qualify for a claim.”
She may have a point, according to Robert Wallan, a Los Angeles attorney at Pillsbury law firm, who represents business owners in insurance claims. Ioroi is not a client of his.
“There’s a real narrative being pushed by insurance agencies to the effect that there’s no coverage for COVID19. The way they’re presenting it is wrong,” he said.
Wallan said the argument by insurance companies saying the virus doesn’t cause physical damage or displacement misses the point. He said he believes under California case law, contamination by viruses are grounds for “loss of use or damage to property.” Some policies may have specific exclusions for communicable diseases, viruses and pandemics, but that’s a minority, Wallan said.
The American Property Casualty Insurance Association, a national trade association, said this week that many commercial insurance policies, including those that have business interruption coverage, do not provide coverage for communicable diseases or viruses.
“Pandemic outbreaks are uninsured because they are uninsurable,” it said.
“We’ve seen this before. First they (insurance companies) dropped earthquake coverage, then they fought claims arising from the 9/11 attacks, then they tightened rules for hurricanes and storms. Their arguments against COVID19 claims is a real loser,” Wallan said.
In Danville, bookstore owner Michael Barnard is in the same situation — wringing his hands over business interruption insurance while keeping his business, Rakestraw Books in the East Bay city, afloat. He’s committed to keeping his staff and running the bookstore’s online site, which is seeing a growing number of orders, he said. Still, thinking about longterm plans, Barnard inquired with his insurance agent about his eligibility for a claim and was told he was unlikely to be covered. His insurance provider is Capital Insurance Group in Monterey.
“Sadly, I wasn’t surprised. My agent is a terrific guy and I’ve known him for decades, but with insurance companies, there’s always a loophole, always an exception.”
Gregory Onstad, Barnard’s insurance agent, said decisions are going to be made on a casebycase basis and it all depends on the language in the specific policy. A large majority of the claims may be denied, he said.
“I don’t think insurance companies should bear the burden of every disaster. The government needs to do its part, too,” Onstad said. He said he heard legal advisers were recommending people still file losses of business income claims anyway, to get the attention of state legislators.
California is interested in seeing the number of claims being filed.
On March 26, Insurance Commissioner Ricardo Lara directed insurance companies to give data on business interruption insurance coverage in relation to COVID19 to the California Department of Insurance by April 9. The information will help policymakers understand the scope of losses to businesses, his office said.
Local officials are also stepping up to help small businesses in this predicament.
On Tuesday, San Francisco’s Board of Supervisors adopted Supervisor Gordon Mar’s resolution declaring that COVID19 causes property loss or damage because of its “propensity to adhere to surfaces and spread.”
“Mom and pop businesses have paid into business interruption insurance to protect them and their workers in times like these. The insurance companies must step up and honor the business interruption claims,” Mar said in a statement.
Ioroi, who’s applied for federal relief and is debating her next steps, said the uncertainty is excruciating. She employs 17 people, six of whom are on sick leave.
“I plan to fight this. We pay a lot of money for insurance, for what?” she asked. “Someone needs to do something.”
“I plan to fight this. We pay a lot of money for insurance, for what? Someone needs to do something.”
Yuka Ioroi, restaurant owner, on business interruption insurance claims being denied