Merchants fight denials of business interruption insurance claims

Restaurants, bars and other business owners struggling to stay afloat during the coronavirus pandemic are desperately reaching out for a lifeline from insurers through their business interruption insurance policies. But insurers contend they are being miscast as potential savior.

Shutdowns and crowd restrictions imposed by state and local governments to limit the spread of the virus have resulted in more than $1 trillion in estimated losses so far for thousands of rapidly sinking small businesses.

That has prompted a flood of claims under business interruption insurance policies that have been almost universally rejected for a variety of reasons, including boilerplate provisions inserted by insurers after the SARS outbreak in 2003 to exclude disruptions caused by virus and bacteria.

"This is an existential threat," said John Houghtaling, a New Orleans attorney who is representing restaurants and other businesses seeking about $8 billion in losses that he estimates they will suffer during the pandemic. "A lot of people who did the right thing and bought this coverage thinking they would be thrown a lifeboat if disaster struck are now being told, 'Sorry, let the Coast Guard come and get you instead.'"

So many lawsuits have been filed against insurers in the U.S. that a Thursday hearing has been scheduled before a federal judicial panel in Washington to decide how to manage them all in the months — and possibly years — ahead. The panel's review involves more than 200 federal complaints in addition the other lawsuits filed in state courts by the owners of meat-and-potato cafes as well as some of the nation's best-known and most exclusive restaurants, such as the French Laundry in Napa Valley's wine country and California cuisine pioneer Chez Panisse in Berkeley, California, which sued its insurer, AMCO, for breach of contract earlier this month.

"The servers, cooks, farmers, ranchers and other hard-working people in the Chez Panisse family are seeing their livelihoods in jeopardy because AMCO has declined to live up to its responsibilities," said Alice Waters, Chez Panisse's owner.