Does Business Interruption Insurance Cover The COVID-19 Pandemic? Insurers Say No, Businesses Call Foul

Businesses that thought they had insurance coverage that would help them through the coronavirus pandemic are finding their carriers balking at honoring business interruption claims, prompting lawmakers to consider action that would force the companies to pay up.

Robertson Ryan & Associates of Mequon, Wis., told Bars and Recreation of Milwaukee, which operates ax-throwing, mini-golf, painting and shuffleboard bars, the venues’ are covered only for “direct physical loss of or damage to property at the premises,” BizTimes reported.

“Pandemic outbreaks are uninsured because they are uninsurable,” David Sampson, president and CEO of the American Property Casualty Insurance Association, said in a statement. “Any action to fundamentally alter business interruption provisions specifically, or property insurance generally, to retroactively mandate insurance coverage for viruses by voiding those exclusions, would immediately subject insurers to claim payment liability that threatens solvency and the ability to make good on the actual promises made in existing insurance policies.”

The association estimates losses for small businesses with fewer than 100 employees are approaching $431 billion a month, outstripping insurer premiums of about $6 billion a month.

California Insurance Commissioner Ricardo Lara has issued a notice, requiring insurance companies to cover COVID-19 claims.

“I want to be absolutely clear that insurance companies need to fairly investigate all business interruption claims as they would during any disaster. Policyholders deserve all the services, coverage, and benefits they are due under their policy,” he said.

Business interruption insurance typically is sold as an add-on to existing property and casualty policies and generally cover profits, fixed costs, wages, taxes and loan payments. While larger businesses are more likely to buy such coverage, only 33% of small businesses have such coverage, the American Action Forum noted.

And though such insurance typically pays claims for physical damage to property, millions were distributed during the 2002-03 SARS outbreak, including $16 million to one hotel chain, the forum said, but that was before carriers started including “viral exclusion” clauses in their policies.

Numerous businesses have filed suit against their insurers in a bid to force payments, and President Trump last week urged companies to pay up. At least seven states -- New Jersey, Ohio, Massachusetts, New York, Louisiana, Pennsylvania, and South Carolina – are considering retroactive language that would bar viral exclusion while U.S. House Democrats are pushing similar legislation.

The forum said policies could be developed to cover pandemic risks, but the cost would not be “financially feasible for the majority” of businesses.

“It is undoubtable that the coronavirus poses a significant and unique economic threat to U.S. and international businesses. Many will require extensive emergency financial assistance. Providing and facilitating this assistance is, however, the role of governments and regulators, not insurers, the forum’s Thomas Wade wrote.

“Instead of taking as much as we could in profits, we paid premiums to insurance companies, purchasing specific coverage for civil authority shutdowns — to cover us in the case that a government entity mandated closures,” chef Thomas Keller, who operates high-end restaurants including the French Laundry, said in an op-ed piece published by Think.

He continued: “We all paid faithfully, with the expectations that we would have someone on our side. We thought we were in good hands.

“But now, when restaurateurs are contacting our insurers, we’re being told that the civil authority shutdown orders are not covered,” he said, noting his policy does not mention pandemics and saying insurers have $822 billion in claim reserves, “our money, that we’ve been paying them over the years to protect our businesses in events like this.”