States seek to force insurance companies to pay those with business interruption policies

Posted at 1:12 PM, Apr 22, 2020

BOISE, Idaho -- Many of us did not see a pandemic coming. Just think back five or six months ago, when we were worried about holiday gifts and gatherings. We would have never predicted a coronavirus with unprecedented health implications was on the horizon, a virus that would cause a shutdown of the U.S. economy and a shutdown of so many businesses, in a way never seen before.

“It brought my business to a screeching halt,” said Ted Challenger.

Challenger is the owner of several nightclubs in Boise, Idaho.

“We are just in survival mode, in a struggle right now,” he added.

Like many savvy small business owners, Challenger actually planned for the unexpected. In addition to all his required business insurance, Challenger, for decades, has been paying for additional coverage known as “Business Interruption Insurance.” He thought that would be his business’s lifeline.

“The insurance company they outright denied my claim,” said Challenger.

His insurance company cited part of his insurance policy that states, “Exclusion of loss due to virus or bacteria.” Across the country, other insurance companies are using that phrasing or one similar to deny claims for thousands of businesses. In some cases, where policies don’t use that wording, insurers are telling clients they simply did not underwrite for this kind of claim and can’t pay it out.

“I have high hopes that our elected officials will see a problem and do something here.”

Insurance companies are concerned with how much it would cost to cover so many businesses at once.

Dr. Michel Leonard, an economist with the Insurance Information Institute, said in a statement, “If insurers nationwide had to pay business interruption policy claims for which insurers collected no premium, it could cost the industry each month anywhere from roughly $150 billion to nearly as high as $380 billion.”

Several states believe the industry can afford this and have introduced legislation to force companies to pay out for the policy. The state with bills in the legislature are Massachusetts, New York, New Jersey, Pennsylvania, Ohio, South Carolina and Louisiana.

Challenger is hoping and even depending on these bills passing.

“From what I understood after 9/11 there was a terrorism clause written into the insurance and Congress passed a bill that they did have to pay out on it to the businesses hurt during 9/11,” said Challenger. “So, I very much hope that.”

In addition to currently not getting their business interruption insurance claims paid, most small businesses are still currently required to continue paying for most of their business insurance during their closures or they risk losing insurance. Having insurance is usually a requirement for most business licenses.