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Advisen Front Page News - Tuesday, May 26, 2020

Business interruption group proposes voluntary 'compromise' for insurers


Business interruption group proposes voluntary 'compromise' for insurers

By Erin Ayers, Advisen

With policyholders and insurers at odds over pandemic-related business interruption claims, both sides face “the largest civil litigation battle in human history” and a compromise is needed to avoid bankruptcies for thousands of the nation’s businesses, according to John W. Houghtaling, the attorney leading many of the lawsuits over coverage.

Speaking during a virtual forum held on May 21 by the U.S. House of Representatives Small Business Committee, Houghtaling, general counsel for the Business Interruption Group (BIG), a coalition of nearly 3,000 businesses, nonprofits, and associations across the country, proposed a compromise: a voluntary federal program for insurers to pay out business interruption claims and then be reimbursed by the government.

“Today, we need a big compromise. We need a win-win,” said Houghtaling. “This will work. It will avoid the litigation costs. It will avoid people like me litigating over the ashes of these businesses.”

The program, he explained, would be for policies with clear virus exclusions. Houghtaling said plaintiffs and insurers agree on some of the key questions posed by the pandemic, including the fact that retroactively changing policies by legislation would not be “constitutionally workable.”

However, Houghtaling added, “If we’re going to live by the language of the contracts themselves, we should live by the language of the contracts themselves. There are a lot of policies that do not have virus or pandemic exclusions in them.”

The two sides continue to disagree on the ability of the novel coronavirus to create property damage or loss, the subject of much of the litigation. Insurers “repeat the refrain that policies do not cover pandemics” and all have exclusions, Houghtaling said. That is not the case when evaluating actual policies, he added, with some expressing offering affirmative coverage for viruses.

“Instead of preparing to pay these policies, they prepared a defense,” he said, citing insurers’ statements that civil-authority shutdowns were not tied to a dangerous property condition but were rather “only about social distancing.”

While the industry has said that paying out business interruption claims would bankrupt insurers, Houghtaling cited the many financial obligations of shuttered businesses, noting, “One’s ability to pay doesn’t impact the duty.”

Direct physical damage is the “anchor of coverage,” established in courts, according to Sean Kevelighan, president and CEO of the Insurance Information Institute (III), during the event.

Kevelighan said the industry supports federal solutions for the “uninsurable” risk of pandemics. A federally backed relief fund has been supported by insurance trade groups, he explained. The industry last week introduced its proposal for future pandemics, modeled on the National Flood Insurance Program (NFIP).

During the forum, members of Congress sought feedback from affected small-business owners to determine how best to meet their needs with federal solutions.

Chris Morrow, owner of two bookstores in Vermont and New York, said he has long carried business interruption coverage but until now had never made a claim. He told the committee that due to “the arcane language and my substantial workload, I had never read the policies fully.”

“I try to mitigate my risk as much as possible as a business owner, but the insurance companies are clearly much better at that,” Morrow said, estimating that he has lost about $538,000 during the shutdown. That is “impossible to overcome without help,” he added. “It sure would have been nice if my business interruption insurance policies covered my business interruption.”

While he applied for the Paycheck Protection Program, it was aimed at keeping people employed for a brief time, “not about keeping my business healthy and viable for the long-term.” Other factors made the process less than appealing for business owners, Morrow explained.

Other types of small businesses have been affected not only by the shutdown, but also by contingent business interruption. Movie theaters, particularly small independent chains, face closures. New movies are not being released for theater distribution.

“Prior to the COVID crisis, we had purchased three policies that could provide coverage to us in the event of any cessation of our business operation of the kind we are currently experiencing,” Francisco Schlotterbeck, CEO of Maya Cinemas in California, told the committee. “Specifically we purchased business income coverage, civil authority coverage, and ingress and egress coverage. Our policy was paid in full when the pandemic started, and we have continued to pay our necessary premiums, despite not receiving a single payout. But claims under all three of our policies were denied by our insurer.”

Mark Shaker, owner of Stanley Marketplace in Colorado, said each of the independent businesses in the marketplace carries business interruption coverage. All 56 claims were denied, across a wide variety of policy forms and language.

“It’s disappointing. This is exactly why we made all of our businesses take this coverage,” he said.

Editor Erin Ayers can be reached at

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