Businesses Are Battling Insurers Over Coronavirus

A multi-billion-dollar standoff between the nation’s leading insurers and the restaurants, hotels,and gyms that purchase their policies has spilled into some of the most powerful corridors of Washington, as both sides clash over who should foot the sky-high costs of the coronavirus outbreak.

The battle hinges on whether insurance providers should have to pay claims to companies that have shuttered unexpectedly as a result of the deadly pandemic. The dispute has attracted the attention of President Donald Trump, triggered lawsuits in courtrooms around the country and touched off a massive lobbying blitz on Capitol Hill, where some insurers say the federal government instead should be the one providing financial help to those that need it most.

The industry’s powerful lobbyists, led by the American Property Casualty Insurance Association, say so-called “business interruption” policies never were intended to cover contagions in the first place. Even if they did, the estimated claims just from small businesses alone during the coronavirus outbreak could total more than $430 billion a month, threatening to create a “solvency event” for the industry, said David Sampson, the group’s chief executive.

But business executives who have dutifully paid their premiums for years say they have been misled — and now find themselves in dire financial straits without the aid they believe they were promised. Some have sought federal aid in response: Prominent restauranteurs including Wolfgang Puck, for example, have raised the issue directly with Trump in recent days. The issue has taken on even greater urgency because of growing confusion about who qualifies for federal coronavirus aid, given changing government guidelines — and fast-dwindling funds.

Even some of the more obscure Washington political players have bulked up for a fight: The International Health, Racquet & Sportsclub Association, which represents 40,000 fitness clubs nationwide, said it took the rare step this month of hiring a slew of new lobbyists, including two new firms, partly to nudge Congress to provide help on the insurance issue.

“They’re setting themselves up to not pay it,” fretted one of the group’s members, Greg Wells, the chief executive of Atlantic Coast Athletic Clubs. The fitness chain closed its facilities’ doors to roughly 70,000 gym-goers in early March. Wells soon after filed a claim with his insurer, only to receive a notice that pandemic-related interruptions aren’t going to be covered.

“That’s what you have this type of insurance for,” he said. “If your business gets shut down, you can continue to employee people.”

Typically, so-called “business interruption” insurance plans are supposed to protect companies from major financial losses if they are forced to close or suspend their operations. The insurance can help smaller employers that are damaged and disrupted due to a local disaster, including a fire that causes direct physical losses.

Yet major insurers began to rethink their policies about two decades ago, facing the threat of another public-health crisis — the SARS outbreak that emerged in 2002. Spooked at the prospect they might have to pay out incalculable sums in the event of a massively fatal contagion, some insurance providers inserted exclusions into their commercial contracts, prohibiting businesses from filing claims for disruptions caused by viruses or bacteria.

Nearly 20 years later, industry executives flatly say that business interruption insurance does not cover claims related to the still-unfolding Covid-19 crisis. The exclusions have come as a shock to the scores of companies that have seen their claims denied in recent weeks. Some shuttered employers and their lawyers contend their policies never actually excluded outbreaks outright — yet they’ve been denied much-needed payments anyway.

Last month, the National Association of Insurance Commissioners appeared to take the side of industry. “Business interruption policies were generally not designed or priced to provide coverage against communicable diseases, such as COVID-19 and therefore include exclusions for that risk,” they said in a statement.

But J. Robert Hunter, a former insurance commissioner from Texas, took a different view, saying that some policies do not specifically exclude coverage in case of a virus or pandemic. “The courts will have to decide,” added Hunter, who now directs insurance policy at the Consumer Federation of America, predicting mixed results for both sides in the ongoing battle.

The rising frustrations — and mounting financial losses — have led some restaurants, gyms and other businesses in recent weeks to redouble their efforts in Washington. They hope: to convince lawmakers to adopt sweeping changes to federal law, either by forcing insurers to pay or authorizing the U.S. Treasury to step in.

“If people have paid for coverage, and their expectation is legitimate, they should be taken care of,” said Steve Sleeper, the executive director of the Professional Beauty Association. His group, representing hair stylists and salons, is one of many now scrambling to figure out its next steps.

Insurers have faced their most vocal opposition from top chefs and restauranteurs, who launched a legal and lobbying campaign with the aid of John Houghtaling, a well-known, New Orleans-based lawyer. Their coalition, dubbed the Business Interruption Group, has been led by celebrity chefs including Wolfgang Puck, Thomas Keller of Napa Valley’s French Laundry restaurant, and Jean-Georges Vongerichten, who owns a restaurant bearing his name at Trump Tower in Manhattan. They so far have snared the support of hotels, casinos, well-known non-profit organizations and Trump himself.

“The insurance industry is pumping out false information,” Houghtaling said, adding they “lied to their brokers, they lied to their agents and now they lying to customers” about their legal obligations to pay claims.

Sampson, the leader of APCIA, stressed such policies for years have excluded coverage for such health crises. “Exploiting this crisis with litigation profiteering will stop America’s recovery before it even starts,” he said.

On March 29, the top chefs directly made their case to the president by phone, stressing insurers needed to pay up, according to a person familiar with the call who requested anonymity to discuss a private conversation. During the call, and in a subsequent memo to Trump and top White House aides, the restauranteurs urged the president to recognize the validity of their insurance claims — and they proposed he ask Attorney General William Barr to issue an advisory opinion finding the virus created dangerous work conditions leading to closures, the person said.

Days later, Trump stunned insurance executives by saying at the daily White House coronavirus briefing that he thought insurers should pay business interruption insurance claims if the policies did not include a pandemic exclusion, noting that insurance customers had paid their premiums for years.

“When they finally need it, the insurance companies say we are not going to give it,” Trump said. “We cannot let that happen.”

A White House official confirmed the call, adding the National Economic Council is studying the matter. “As President Trump has said, we are ensuring that we take care of all Americans, including affected industries and small businesses, and that we emerge from this challenge stronger and with a prosperous and growing economy,” the official said.

Insurers, for their part, saw Trump’s comments as friendly to them. The group APCIA felt that the president “did not call for retroactive coverage for business interruption insurance,” it said in a statement at the time.

In the process, the industry has launched a lobbying blitz of its own: With dozens of trade group allies, they’ve called for a government assistance program to deliver aid directly to businesses, including through a federal fund modeled in some ways on the aid that was provided after the 9/11 terrorist attacks. The industry’s five major trade associations spent roughly $3 million over the first three months of 2020 to push such policies and other issues in Congress, according to federal ethics reports filed Monday.

The insurers’ preferred proposal competes with several other efforts emerging on Capitol Hill, including an early push by Republican Rep. Mike Fitzpatrick of Pennsylvania to force insurers to pay businesses disrupted by the coronavirus. Another, by Democratic Rep. Mike Thompson of California, would ensure future business interruption coverage includes pandemics — – an idea APCIA and its allies said in an April letter would “end the very existence of the business interruption insurance market as we know it.”

In response, Thompson sharply criticized the industry, attributing its recent recalcitrance to a long history of denials, including during the California wildfires last year. “Those guys have made a lot of money avoiding their responsibility,” he said, “so I’m assuming they don’t want to all of a sudden turn around and say we should have been doing this right.”