Small businesses taking insurance companies to court over interruption coverage

Posted at 6:41 PM, May 06, 2020
and last updated 2020-05-06 19:41:24-04

Small businesses have been struggling to collect on claims against specific policies called business interruption insurance, as insurance companies claim the COVID-19 pandemic is not included in their coverage.

TMJ4 News spoke with a pair of attorneys who say they've taken on hundreds of clients frustrated after paying thousands to insurance companies. Clients like Caitlin Cullen, the owner and chef of the Tandem Restaurant.

"It's just is a frustrating time to be a business owner, especially in a high loss business like a restaurant," Cullen said.

She was forced to stop normal operations at her restaurant during the pandemic like many other small business owners. Now, she's offering free meals to anyone who needs them, but there's no free lunches for owners like her.

Cullen said her insurance agents were very helpful in filing a business interruption insurance claim, but the company denied it.

"Spent three and a half years it's been dozens of thousands of dollars and it's just, it doesn't make any sense that there's no money there," Cullen said.

Attorneys Jay Urban and Daniel Kondos both said they're representing about a hundred clients each who are fighting to get business interruption insurance.

"The most folks that were representing are those in the hospitality industry because that's a mandatory shut down, and under the terms of the policy, they have the greatest losses they can't provide some other type of service," Urban said.

They believe the policies are worded to benefit the owners during a global pandemic.

"Insurance companies, we have found are using general similar denial forms across the country" Kondos said. "They just don't want to pay. So they're going to deny they've crafted their policies to be very loosely worded and that may come back to haunt them."

But Ty Leverty, professor of risk management and insurance at UW-Madison, disagrees. He said most policies exclude communicable diseases.

"There's good strong economic reasons why they are excluded highly correlated events, making it very difficult to diversify and as a result, private insurers cannot provide protection for this," Leverty said. "It's sort of the definition of a risk. That's not insurable."

He adds most catastrophes don't happen to everyone at the same time, and companies may not be able to handle claims filed by their customers all at once.

"Now if you think about a pandemic, everybody is going to be drawing at that pool, the exact same time because they're so highly correlated," Leverty said. "It's happening throughout the world. And as a result, that pot of money to be able to sustain that would be so massive that it just couldn't possibly work."

According to the Insurance Information Institute, business interruption payouts would add up to $255 billion a month and would bleed the industry dry in three months.

While business interruption insurance may not be an option for business owners, they can apply for loans through the federal government to get by. But those loans take time.

Cullen has applied for a pair of loans, but has yet to hear back. She says she's staying close to her friends in the small business world to help come up with new ideas to get through this pandemic.

"We're not really looking for anyone to help us with this and said we're going to create new systems to make sure we help ourselves in each other," Cullen said.

Urban and Kondos say they are waiting on the courts to figure out how these cases will be tried. In the meantime, they say some companies have approached them about potential settlements.

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