For KC restaurants hurt by COVID-19, another shoe drops: Insurance won't cover losses

Apr. 27--Since 2006, upscale Italian restaurant Trezo Mare has been a mainstay and original tenant of the Briarcliff development in the Northland.

Over those years, owner Mike Lee has paid insurance premiums to protect his business from any number of unexpected hazards.

When Kansas City issued a stay-at-home order on March 17 to slow the spread of the coronavirus, Lee shut down his dining room and switched to curbside to-go service. Still, revenue has dropped as much as 80%, prompting him to file a claim with his insurer, Cincinnati Insurance Co., to recover losses from an interruption in his business.

Lee said the insurer denied his claim, insisting there was no evidence that the mandated order did direct damage to his property or resulted in dangerous physical conditions.

"We've been paying premiums for years to be protected from something like this pandemic that forced us to shut down our dining room," Lee said. "To have it turned down immediately is disappointing and surprising."

Businesses suffering from losses from the coronavirus pandemic are turning to their insurers. Many are finding their insurance companies are denying claims for income arising from a suspension in business.

Some are now turning to their lawyers.

Trezo Mare is a plaintiff in a class action lawsuit against The Cincinnati Insurance Co. filed in federal court last week. Trezo Mare is joined in the lawsuit by the operators of Grand Street Cafe, which has locations in Kansas City and Lenexa. Tyler Hudson of Wagstaff Cartmell represents the restaurant companies.

The lawsuit said the insurance policy from Cincinnati Insurance did not have an exclusion for losses occurring due to a virus or communicable disease but were still denied coverage after local and state authorities in Kansas and Missouri ordered a suspension of in-person dining at restaurants.

Exclusions to insurance policies are specific instances in which an insurance company has told a customer it will not insure for losses or damages.

The lawsuit claims the insurance industry recognized the possibility of a pandemic as some insurers have included an exclusion for viruses, but that the Cincinnati Insurance policies for Trezo Mare and Grand Street Cafe did not carry those exclusions.

Even so, the lawsuit said both restaurant companies were denied coverage, noting that the denial letters from the insurance company were nearly identical.

A spokesperson for Cincinnati Insurance declined to comment.

"We respect the rights of all parties to have their issues heard and resolved in a court of law," said Betsy Ertel, a Cincinnati Insurance spokeperson in an email to The Star. "For that reason, we don't comment on ongoing litigation."

Also suing Cincinnati Insurance is Promotional Headware International, a Johnson County wholesaler of custom-branded merchandise that operates under the trade name Sportsman Caps & Bags.

The company said in a lawsuit it was forced to suspend its business under a Kansas order and has lost 95% of its sales. It filed a claim under its all-risk policy with Cincinnati Insurance and was denied.

"What we anticipate is going to happen...is that the industry, it appears, is taking a position that they are not going to extend coverage and is going to litigate the issue," said Patrick Stueve, a partner with Stueve Siegel Hanson, which represents Promotional Headware International.

Such cases against insurance companies are expected to pile up as the pandemic continues to gut businesses across the country. Some states are considering legislation that would require insurance companies to cover business interruption claims. The industry opposes such measures.

"Retroactively rewriting contracts undermines existing contractual relationships and risks injecting new uncertainties into our current economic crisis," said the National Association of Professional Insurance Agents in a statement. "Such proposals purport to quickly provide assistance to businesses in need, but in reality, such a response would not help all businesses; only one in three small businesses even has business interruption coverage."

Stueve said businesses encountering losses from coronavirus should check their policies to see what exclusions are included.

"I think the best advice is to have it reviewed just to have a complete understanding of what their coverage is," Stueve said.

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