May 17--Randy and Amanda Rucker opened River Twice, their modern American BYO on Passyunk Avenue, seven months ago, hoping that his culinary talent and her business acumen would establish the restaurant as a fixture on one of Philadelphia's most competitive restaurant corridors.
Reviews were strong. Rucker's food found an audience. The diners streamed in.
Then came coronavirus.
River Twice, like all other restaurants in the city, was ordered to close its dining room March 16, cutting off revenue overnight. And while the Ruckers assumed that insurance would help their business survive, they were stunned to hear from their broker that their claim would likely be denied.
Lawrence Highbloom, Amanda's father and managing member of the restaurant, likened the discovery to a "guillotine coming down." Now, River Twice is suing its insurer.
"That's the point of insurance, isn't it?" Highbloom asked. "It's not to protect you from bad decisions by the business operator. It's to protect the business operator from circumstances beyond their control."
In courtrooms and statehouses across the nation, small businesses and insurers are squaring off in a high-stakes battle over whether business-interruption policies will have to pay out for losses incurred during the nation's prolonged coronavirus shutdown.
Dozens of suits have already been filed by restaurants, medical and dental practices, hotels, sporting arenas and other businesses in Philadelphia alone, and hundreds more are expected as more insurance companies begin denying claims. Some lawyers for policyholders are pushing for federal suits nationwide to be consolidated in front of one judge in Philadelphia, Miami or Chicago -- a move that could give smaller businesses more clout.
Lawmakers in Harrisburg and Trenton, meanwhile, are crafting bills that would force insurance companies to compensate policyholders.
And with loss estimates for small businesses reaching as high as $383 billion a month, according to the American Property Casualty Insurance Association, both sides say they're fighting a war for their very survival. Insurance trade groups say having to pay such monumental sums all at once could cause their industry to collapse.
Still, said lawyer Daniel Bacine, who is representing MilkBoy, a Center City restaurant, bar and music venue, in a suit against its insurer, this kind of unpredictable disaster is exactly the reason small businesses dutifully paid their premiums.
"Here you have a complete shutdown of your business. You can't operate," he said. "Isn't that what you buy insurance for?"
Exclusions date to another virus
The issue at the heart of the legal disputes is whether business-interruption insurance should apply amid a pandemic that has brought large swaths of the economy to a standstill.
Insurers began including exclusions to most policies for "viral outbreaks" in the 2000s after the SARS epidemic wreaked havoc on business in parts of Asia.
But the many businesses that have filed suit say those exclusions shouldn't apply in this instance because their losses were caused not by the coronavirus itself, but rather state and local shutdown orders meant to stop its spread. Policies often do cover unforeseeable losses when civil authorities tell a business to close.
Tom Baker, a University of Pennsylvania law professor who specializes in insurance law, believes that the industry did not actually intend to cover losses from pandemics, but could face a real challenge. "What we're finding," he said, "is there are a lot stronger arguments for businesses than people in the insurance industry have really wrapped their heads around."
Insurance companies and their trade groups are pushing back. Several large insurers, such as Travelers Casualty, have already issued blanket statements saying they have no intention of paying, though few have yet to respond in court to the suits.
A spokesperson for Cincinnati Insurance, insurer for MilkBoy, said it does not comment on pending litigation, and "remains committed to doing our part to support the families and businesses in our agents' communities."
"Pandemic outbreaks are uninsured because they are uninsurable," David A. Sampson, chief executive of the American Property Casualty Insurance Association, said in a statement last month. Any legal action or legislation requiring insurance companies to "retroactively" cover viruses, he added, "would immediately subject insurers to claim payment liability that threatens [their] solvency."
Lawyer James Ronca, who is handling cases for 12 restaurants and a Center City dental practice, said he doesn't think the claims will make or break insurers -- but they could mean the difference whether small businesses close their doors for good. If insurers have too many claims one year, they will recoup the money by raising premiums the next, he said.
"If you keep the business alive, then it will keep paying premiums," he said. But "if all of these businesses go out of business, they're not going to have any policyholders next year."
Litigate and legislate
But their battle isn't being played out just in courtrooms. Elected lawmakers, facing uphill fights to save their state and local economies from long-term slumps, have also opened another front in state legislatures and in Congress.
In March, New Jersey became the first state to propose legislation that would require insurers to cover losses incurred during the period of Gov. Phil Murphy's emergency declaration.
The bill, proposed by Assemblyman Roy Freiman (D., Somerset), Majority Leader Louis Greenwald (D., Camden) and others, would apply only to policyholders with fewer than 100 employees and would set up a state-backed fund, run by the New Jersey Banking and Insurance Commission, to partially reimburse insurers that are paying out claims.
Since then, Pennsylvania and at least four other states have followed suit with similar proposals, as has U.S. Rep. Brian Fitzpatrick (R., Bucks) at the federal level. President Donald Trump has expressed broad support.
"They've been paying a lot of money for a lot of years for the privilege of having it," the president said at a White House Coronavirus Task Force briefing earlier this month. Now, "when they finally need it, the insurance company says, 'We're not going to give it.' We can't let that happen."
The backlash from the insurance lobby has been as swift as it has been forceful. Along with allies including the U.S. Treasury, the U.S. Chamber of Commerce, and state insurance regulators, the deep-pocketed insurance lobby pressed its case that such measures would violate the Constitution, which prohibits governments from rewriting the terms of private contracts after the fact.
Options for a small business
So what chance does a small business such as River Twice in one courtroom in Philadelphia stand against an entire industry marshaling its financial, legal and lobbying resources?
To strengthen those odds, the restaurant's lawyer, Richard Golomb, is pushing for all of the coronavirus-related insurance lawsuits nationwide to be consolidated in front of one federal judge in Philadelphia, similar to how the courts handled concussion claims from former players against the NFL in 2012. Other factions have pushed to have the cases heard by a judge in Chicago or another in Miami.
But regardless of where the cases land, consolidation could give smaller businesses more clout and would avoid the risk of judges across the country issuing a patchwork of conflicting decisions that could leave the success or failure of insurance claims to swing on geography.
"These cases [are] too important to the survival of the insured businesses and indeed, to the recovery of the economy as a whole, to leave to various courts across the country that could reach divergent results," Golomb wrote in court papers.
Baker, the law professor, said the extent to which plaintiffs can coordinate their efforts will determine whether this is a "fair fight" against insurers. Otherwise, he said, "you've got a $160 billion industry facing off against a restaurant."
None of the insurance companies named as defendants in the suit has yet responded to the suggestion, which is set to be decided by the federal Judicial Panel on Multidistrict Litigation at their next meeting in July.
Meanwhile, with his losses mounting by the day, business owner Mike Jacobs worries how much longer he can hold out. Since his Chester County Sports Arena shut down in March, he had to lay off staff and cut back his plans, but hopes to reopen in time for his busiest season. His Downingtown ice and roller rink makes most of its money from hosting summer camps and hockey leagues.
Jacobs has been counting on his insurance policy to carry him through. Losing it, he said, would be a gut punch.
"We've spent our lives building our businesses up, and something like this pandemic comes out of left field," he said. "We paid our premiums all year long for years and years and years. Now, the one time we need to use [our insurance], they come up empty."
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