Many of California’s roughly 3.8 million small business owners have scrambled to find some financial relief after Gov. Gavin Newsom on March 19 ordered all non-essential businesses to close to slow the spread of COVID-19.
That meant bars, breweries and nightclubs were forced to shutter their doors. Boutique clothing shops also shut down and restaurants were limited to takeout and delivery, bringing many cities’ local economies to a screeching halt.
Several of those mom-and-pop shops relying on their business insurance policies to keep them afloat through the closure have had to face the sobering reality that that will not be the case.
Many insurers are denying business interruption claims because of broad protections against pandemics such as the current COVID-19 outbreak that has sickened thousands worldwide.
Business interruption insurance, in a nutshell, is a type of policy that buoys businesses with cash payouts during unforeseen disasters such as fires and floods.
Some policies, however, have clauses that specifically exclude cases related to virus and bacteria, something that was added after a Hong Kong-based hotel group recovered millions following Severe Acute Respiratory Syndrome’s devastation of the Asian economy in 2003.
Matthew Jones, an agent with Farmer’s Insurance in Watsonville, said insurers would be in distress if they had to shoulder the load of the current work stoppage. There are more than 30 million small businesses in the country, and, as of Thursday evening, unemployment claims had soared past 3 million.
“That would bankrupt the industry,” Jones said.
There are reports, however, that insurers are facing significant political pressure to do just that. In New Jersey, Massachusetts and Ohio, state legislators have proposed legislation that would require insurers to approve and pay out the claims during the COVID-19 outbreak.
In California, Insurance Commissioner Ricardo Lara has ordered companies to send data for a state review of business interruption policies. That data would be used by policymakers to determine needed action.
Insurance company responses are due by April 9.
“The coronavirus crisis is devastating small businesses across our state, throwing people out of work and quickly unraveling our economy,” Lara said in a statement. “Although many small businesses maintain commercial multi-peril insurance policies with business interruption coverage, they will have large uninsured losses. We are currently working with the insurance industry and business groups to find creative solutions during this unprecedented crisis to make sure our businesses survive, and we need this data to define the size of the problem.”
KBK Insurance President Jeff Kane said he’s had about half a dozen clients ask if their policy covers the parameters of the current shutdown. Though the chances of those claims being approved are slim, Kane said he always encourages his clients to do so.
“If a client wants to submit a claim, we’re always here,” Kane said. “They’ll be seen on a case-by-case basis so there’s always a chance.”
Jones, too, has told his clients to submit a claim despite the unfavorable odds they face. If nothing else, Jones said, the denial will serve as a documented trail to be presented when help comes to small businesses by way of the recently-approved $2 trillion relief bill.
“I’ve told my clients that if you think you might have a chance, even a very small chance, always open the claim,” he said.
