Restaurant owners are battling insurers over the payment of business interruption claims as a result of COVID-19, but it will likely be years before courts settle the issue. Meanwhile, insurance groups are pressing the federal government to declare stay-at-home mandates the kind of disaster that requires a special fund to help restaurants and other main street businesses recover.

"We are banding together to launch big legal action in every state against insurers who deny ... coverage," said John Houghtaling, Business Interruption Group (BIG) general counsel and Gauthier Murphy & Houghtaling partner.

A handful of prominent chefs, including Wolfgang Puck and Thomas Keller, owner of Michelin-starred The French Laundry in Napa Valley, California, launched BIG earlier this year. The group says property casualty insurers are using technicalities to get out from paying business interruption insurance claims. Other small businesses, including retailers, have taken their own action against insurance companies.

Although some policies include exclusions that appear to make COVID-19 ineligible for coverage, because they disallow virus outbreaks and civil actions, BIG argues insurance companies are uniformly declining claims, regardless of the language of the policies.

"We pay so much insurance, we think it should be able to kick in," restaurant owner Jean-Georges Vongerichten told Eater. Vongerichten, who owns several dozen Manhattan restaurants, estimates he's paid more than $25 million in business-interruption insurance over the last decade.

Insurers argue business interruption policies were never intended to cover something like COVID-19; they were intended to cover natural disasters, terrorism and other events that physically damage property. "Pandemic outbreaks are uninsured because they are uninsurable," said David Sampson, president of the American Property Casualty Insurance Association (APCIA).

According to APCIA, the pandemic would effectively bankrupt the industry. Insurers have a surplus of $800 billion from all lines of insurance while losses among just businesses with fewer than 100 employees could total between $223 billion and $431 billion a month, although that figure includes all impacted businesses, not just those with insurance coverage.

By one estimate, only about 35% of small businesses are covered.

"They wouldn't offer some of these contracts if they were required to cover pandemics," says Benjamin Collier, an assistant professor in the risk, insurance and healthcare management department at Temple University Fox School of Business. "They wouldn't offer business interruption insurance at all, or in cases where they might be willing to, they would charge substantially different rates."

Light touch sought

Houghtaling filed the first business interruption lawsuit against an insurer on behalf of Cajun Conti, the company that owns Oceana Grill in New Orleans. He said restaurateurs are simply asking insurers to look at each policy on a case-by-case basis, and, if there's no exclusion, to pay the claim if it is justified. They're not asking the government to require insurers to pay the claims, regardless of the specific language in the policies.

"I don’t believe it's constitutional, nor do I believe it’s fair," Houghtaling told Reuters.

In a proposal BIG is lobbying for, the federal government would step in with an insurance subsidy program, but participation would be voluntary for insurers. Those that opt in would pay business interruption claims on policies with, and without, virus exclusions. For the claims with virus exclusions, insurers would pay but then get reimbursed through the federal fund for the claim amount as well as administrative costs.

The legislative effort got a boost in late March when President Donald Trump, after talking to the group's leaders in a conference call, said he supported their effort.

"You have people that have never asked for business-interruption insurance and they have been paying a lot of money for a lot of years for the privilege of having it and then when they finally need it, the insurance company says 'We’re not going to give it,'" Trump said. "We can’t let that happen."

Trump's position could put him in unusual political company. Among other lawmakers on Capitol Hill who are putting pressure on insurers to pay, although not necessarily supporting BIG's position, is Rep. Pramila Jayapal (D-WA), a lawmaker with whom Trump has often clashed.

Not all legislative efforts to get the insurers to pay is as business-friendly as what BIG supports. One bill, by Rep. Mike Thompson (D-CA), would require insurers to pay, even if there's an exclusion in the policy, by voiding that exclusion.

For the insurance industry and its supporters in Congress, that approach is a non-starter because it would involve breaking contractual agreements between the insurance companies and their insureds.

"Insurance contracts are a foundational pillar of our economy and attempting to ex-post facto rewrite them through knee-jerk administrative action would undoubtedly undermine our insurance system and create major unintended consequences for new contractual relationships going forward," a group of Republican senators said in a letter to Trump in April.

"If any attempts to legislatively or administratively rewrite insurance policies in this manner are successful, this action could be litigated in the courts for years, guaranteeing that no money would make it to small businesses that need it," the letter said.

Near-term resolution unlikely

With powerful advocates on both sides, the issue is unlikely to be resolved soon, leaving restaurant and other small business owners scrambling for help elsewhere, including the $660 billion Paycheck Protection Program. That program makes forgivable loans available to businesses with 500 or fewer employees, but PPP has had its own problems.

Many small businesses have been unable to get loans and, among those that have, the funds have not been that helpful because of restrictions on what the money can be used for. Borrowers are required to use 75% of the funds to maintain staff levels.  But for restaurants that are closed and rely on online sales, the requirement makes little sense. The money is needed mainly for rent and other operational costs. But if restaurants use it for those costs, they have to pay the money back.

"Many [restaurant owners] are realizing it is not actually going to provide them the assistance they need … (and they are) highly likely to return those loans,” Sean Kennedy, spokesman for the National Restaurant Association, has said.

That's why many restaurants are counting on their insurance policies. "We need insurance companies to do the right thing, and save millions of jobs," Thomas Keller of The French Laundry said.