Wichita businesses face crushing realization about so-called business interruption coverage

As business owners face one difficult dilemma after another during the COVID-19 pandemic — the fight for federal dollars, the struggle to keep open and in some cases manage employees from afar — they’re also facing a crushing realization:

Most business interruption insurance doesn’t cover this business interruption.

“Business interruption is business interruption,” said Pam Palmer, president and CEO of Palmer Physical Therapy for Women.

“I thought that we would be covered,” she said. “What do we pay for?”

All kinds of business owners locally and nationally who have had to shut down due to the coronavirus outbreak are asking the same thing.

“The bottom line is everyone thinks they have it, but they don’t,” said Jim Robinson of Hite, Fanning & Honeyman.

“For the most part, people are buying property insurance is what they’re buying,” he said.

Even with most business interruption coverage, he said there has to be damage to the physical property of a business.

“But for the most part, a pandemic does not cause physical loss to a property.”

Robinson said some policies may provide for cleaning of hospitals during a pandemic, but he said, “Those are very specialized policies.”

Some business owners are trying to assert that if there’s evidence of the coronavirus on the surfaces of their businesses, that it constitutes physical damage.

“But that is really something that is being litigated,” Robinson said.

Litigation is something some business owners are wondering if they need to pursue.

Ty Issa, who owns several restaurants, including Larkspur and YaYa’s, said he received an eight-page letter from his insurance company explaining that his business interruption coverage won’t cover losses due to the pandemic.

Issa said he figures he has two options.

Option one: “We’ve just got to accept the facts.”

Option two is to hire a lawyer, but Issa said he’s too busy to even contemplate that as he tries to get his businesses going again.

“We’re going to review this later. For now, we’ve got a bigger fish to fry.”

A key exclusion

Traditional business interruption insurance was designed to help businesses that lost income when something happened to cause them to temporarily close, said Blake Shuart, a trial attorney with Hutton & Hutton.

That included disasters such as fires, tornadoes, earthquakes or vehicles hitting businesses.

“It was pretty broad,” Shuart said.

Still, there was that caveat that property had to be damaged.

“Some policies provide coverage for loss of income due to civil authority,” said John Baker, whose Fee Insurance Group is an independent agency that represents several carriers.

“If civil authority says you have to shut down, then they’d cover your loss of income.”

For instance, he said, if a tornado hits a strip center and a business that wasn’t directly hit was told to shut down because the building is unsafe, that’s a covered loss.

After the SARS outbreak in 2003 and Ebola more recently, insurance companies have added exclusions about viruses.

If a business wanted to make sure a pandemic is included in its coverage, “You have to be willing to pay significant extra premiums,” Shuart said.

That kind of coverage is rare.

A notable exception: Wimbledon, the tennis tournament. It’s been paying almost $2 million a year in insurance against tournament interruption since the SARS outbreak — paying almost $32 million so far.

“A lot of people thought they were crazy,” Baker said.

Now, though, Wimbledon will receive almost $142 million because the tournament is canceled this year.

Even with the benefit of hindsight, the average business can’t afford that kind of insurance.

Some, however, think there’s a remedy with their existing business interruption coverage.

Nationally, some well-known chefs — including Wolfgang Puck, Thomas Keller and Daniel Boulud — have banded together as the Business Interruption Group to force payments under the civil authority section of their insurances. Some have already filed lawsuits.

“There’s going to be a lot of people filing lawsuits across the country,” Shuart said.

Still, he said, “It’s not an immediate remedy for anybody staring down the barrel of going out of business any day.”

Rick Bumgardner, the producing artistic director of Roxy’s Downtown, said he’s getting about six e-mails a day from attorneys looking to file class action lawsuits against insurance companies over business interruption insurance.

As much financial danger as Roxy’s is in and as disappointed Bumgardner was to find out his insurance has a virus exception, he said he won’t sue.

“That will just put every insurance company out of business if they win.”

‘It was insanity’

Natasha Gandhi-Rue describes March 13 as the worst Friday the 13th of her life.

“I lost about $7,000 in catering money that morning,” said Gandhi-Rue, who owns the Kitchen at Union Station with her husband, Scott Rue.

Gandhi-Rue said her lease compelled her to buy business interruption insurance.

“We thought it literally meant that (you’re covered) when your business was interrupted by things that were out of your control,” she said. “I’ll be honest with you: We didn’t read through the 5,000-page, 8-point document about business insurance coverage.”

She’s been disappointed by it multiple times, such as when the streets around her business were closed and her power and water went on and off due to work in the area.

“It was insanity,” Gandhi-Rue said. “Why are we being forced to pay this?”

Her forced closure due to the pandemic is beyond disappointment, though.

“I don’t know if it’s a natural disaster, but it’s a natural thing,” Gandhi-Rue said.

So what can she and other business owners do?

First, “You just can’t prejudge the issue,” said Coy Martin of Coy Martin Law.

“Pull out your policy, get with your agent and determine what kind of coverage you have,” he said. “If there’s any chance that you have an argument on coverage, file your claim.”

He said a number of large insurance carriers have already declared they won’t be covering any business interruptions caused by the pandemic.

“They’re going to take a strong stand against coverage under their policies.”

That doesn’t necessarily mean they’ll win, though.

Following Hurricane Katrina in 2005, Martin said, it “took litigation and legislation to impress upon insurance companies to pay.”

Now, he said, “The industry is fighting back and will continue to do so because the potential losses are extraordinary.”

Gandhi-Rue wonders if there’s a point in fighting.

“This is the whole country. There’s no way they can help all of us.”

Gandhi-Rue discussed the situation with her insurance representative. She said she was told people like her could try a legal remedy, but even if someone is successful, a precedent will be set and the money will run out quickly.

“Kind of like the PPP loans,” said Gandhi-Rue, who so far has been unsuccessful in getting any money from the federal Paycheck Protection Program that was supposed to help small businesses, mainly with their payrolls.

Martin said business owners should look beyond their insurance companies if they don’t find satisfaction there.

“They should direct their complaints to their (legislators) and the Kansas Insurance Commissioner to put some pressure on what exclusions are going to be permissible in Kansas.”

In a statement, the Kansas Insurance Department said concerned policyholders can file complaints online or over the phone.

“We would look for violations of Kansas insurance law including the unfair methods of competition or unfair or deceptive acts or practices act.”

Gandhi-Rue said the idea of what business interruption coverage means should be revisited.

“I think that is a conversation we should be having, and we will be having after the dust settles on all of this.”

In the meantime, Gandhi-Rue and others, such as Palmer and her physical therapy practice, would like to find some middle ground.

“Maybe these insurance companies should be giving us some of that premium back,” Gandhi-Rue said.

“Even just a portion would be nice,” Palmer said.

Gandhi-Rue said she doesn’t know what the answer is, only that people need help.

“Everybody is desperately trying to save their business.”

This story was originally published May 10, 2020 at 5:03 AM.