Vice President, Operations of IMA Financial Group
Circumstances well outside operators’ control are forcing closures, loss of revenue and, in some cases, permanent shut downs. We can all agree that this is a “disaster,” but most business insurance policies only cover catastrophes of the physical kind, and will reimburse lost revenue only if the restaurant suffers “direct physical loss or damage.” Think fire or hurricane. Not a pandemic.
But what can be done? RMS interviewed hospitality insurance expert Tim Smith, Vice President, Operations for IMA, Inc., an employee-owned national insurance brokerage with offices in Denver, Dallas, Kansas City and Wichita, Kansas. Smith leads the firm’s hospitality practice, which provides property insurance and other customized products to more than 3,500 hotels, restaurants and casinos throughout the U.S.
Our conversation started on a dire note. “Unfortunately, the issue is pretty black and white,” said Smith. “A pandemic is not likely covered.”
But with some hotel clients experiencing 0% occupancy, and the restaurant industry devastated, Smith and his colleagues are advising their clients to file a claim, if, for no other reason, than to get in the queue.
“I’d rather my client be claimant number 129 than claimant number 12,900.”
File a claim
IMA provided our team some helpful free resources from its COVID-19 Claims Resource page, including an easy-to-use downloadable document that outlines the best way to file a claim and the information operators need to include.
IMA recommends as much detail as possible to outline business losses, including: impacts to employees; sales, costs and other key operating statistics and official orders of local shut downs. RMS is also available to help pull this detail.
Don’t take no for an answer
Smith expects most claims to be denied, initially, and his team has developed another resource, called “What to Expect,” that clarifies the terms insurers are likely to use in communications that deny or question the claim.
He also mentioned that: “some policies contain language or provisions broad enough to open up possibilities for coverage.”
A few examples:
- Sublimits are written into some policies, for example a pollution policy or policy that covers mold, bacteria or virus, usually added in the case of water damage. These wouldn’t cover the total loss of business, but could cover some costs.
- Dependent properties coverage insures a property that is dependent on another to provide traffic. Think a restaurant near a large tourist attraction or event center. In this case, Smith notes that operators could make a claim based on the dependent property’s closure.
- Some policies are broad “All Risks” except specific excluded perils. In those instances where there is no exclusion for virus, coverage may be found.
Changes might come
While it doesn’t feel like the coverage is there now, noted Smith, the policies and insurers decisions are starting to be challenged. He pointed to the lawsuit filed by Oceana Grill on New Orleans’ Bourbon Street seeking a judgment against insurer Lloyd’s of London to cover losses incurred while Louisiana’s restaurant dining rooms are closed due to the coronavirus pandemic.
Additional lawsuits have been filed in the few days since we talked with Smith, including the high profile suit brought by Thomas Keller, famed owner of The French Laundry and other high-end establishments, against his insurer, Hartford Fire Insurance Company after his business interruption claim was denied.
Other grander attempts are also in play, including a bill filed with the Massachusetts state senate that seeks to eliminate exclusions for bacteria or virus outbreak, previously added during the 2003 SARS outbreak, and bills in the New Jersey legislature and New York State Assembly, requiring first-party property policies to insure business interruption losses due to COVID-19, in spite of policy provisions requiring physical damage and possibly despite widespread use of a “Virus” exclusion.
Though no historical precedence occurs for our current situation, Smith did mention the Terrorism Reinsurance Act of 2002, which created government-backed terrorism insurance after 9/11.
“We never know what might be possible in a year from now,” Smith noted. “Today’s crisis could encourage a similarly government-backed policy that covers a pandemic.”