New bill seeks to help small businesses collect on insurance claims due to COVID orders

Mar. 1—A new bill filed by state Rep. Dylan Fernandes, D-Woods Hole, would provide help to small businesses who've paid for business interruption insurance but haven't been able to collect on it.

The bill, "An Act Concerning Business Interruption Insurance," was filed Feb. 19. It would require insurance companies to honor legitimate claims of business interruption and do away with virus-exclusion clauses.

Insurance companies have, for the most part, refused to pay interruption insurance, citing exclusions for viruses and pandemics. Many insurance companies claim that business losses must be due to physical loss or damage, not just closure, according to a report last month from the trade publication Business Insurance.

But there has been significant push back on the part of small businesses. Proposed legislation that would make insurance companies pay at least partly for some of the losses has been introduced in 10 states, including New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Texas and Washington.

In a statement Feb. 23, THIRST, a national hospitality industry advocacy group, claimed that state orders, not the pandemic, forced small businesses to close. Such "civil authority action" is covered by many business interruption insurance policies.

Fernandes says insurance companies need to have skin in the game.

"They have to do their job and pay for some of the business interruption that these small businesses have been impacted by," he said. "They made a profit during the pandemic and they're sitting on a pile of cash."

Massachusetts has almost 350,000 small businesses that employ fewer than 50 workers. The new bill has been shaped with small businesses on the Cape in mind, Fernandes said.

The situation is dire as 37% of small businesses in the state have closed their doors, Fernandes said.

Chuck Konner owns three restaurants on Cape Cod. He estimates revenue has gone down 43% at Grill 43, and 40% at the Rock Harbor Grill. His new restaurant, La Bella Vita, opened after the coronavirus hit, so he doesn't have numbers to compare.

Konner has always paid for business interruption insurance. It helped him when the pipes burst at a restaurant he owned in Chatham, forcing him to close the doors to the business for five weeks. At the time, his insurance helped pay bills and cover staff wages, including for the high school students who worked there.

"It was wonderful," he said. "We'd been paying for it all these years."

But other business owners haven't been as fortunate.

Mac Hay, a chef who owns five restaurants and several fish markets on the Cape including Mac's Fish House in Provincetown, isn't a fan of insurance companies, calling them the biggest scam in the American economy.

Years ago, he lost power for three days after a big storm. He lost product and business and thought his insurance would help. But because it was a certain type of power loss, he wasn't covered at all.

"The system is rigged so that insurance companies don't lose," he said. "And when they lose, they call on Congress to bail them out."

But Konner is staying optimistic about the new legislation.

"We need to get representation from all small businesses," he said. "If we can get everyone to put a little pressure, it may pass."

According to the American Property Casualty Insurance Association, the industry is operating with a nearly $800 billion surplus. But the association says paying for business interruption policies could bankrupt the industry.

But Christopher Almeida, the Massachusetts state organizer for THIRST, believes the insurance industry could pay out legitimate claims without going bankrupt.

"Small businesses have paid tens of thousands of dollars a year for this coverage," he said. "Our intention is not to put insurance companies out of business."

According to the APCIA, nearly 8 million commercial insurance policies include business interruption coverage. Businesses with fewer than 100 employees accounted for 90% of that. A vast majority of all policies (98%) require physical loss, and 83% of the policies had exclusions for viral contamination or pandemics, according to the association.

Business interruption insurance may cover lost income through a civil authority clause, but that clause usually stipulates that some difficult provisions be met.

U.S. insurers have received 201,285 claims for business-interruption losses caused by coronavirus orders. Of those, only 3,001 were paid, according to the National Association of Insurance Commissioners.

Contact Denise Coffey at [email protected]. Follow her on Twitter: @DeniseCoffeyCCT.

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