Tribulations Restaurants Face as Business Interruption Claims are Denied

The impact of the coronavirus pandemic has – and continues to be – felt by every industry across the board. Restaurants in particular have been dealt a harsh blow, as many have been forced to shutter their dining areas and bars, and solely rely on take-out and delivery orders. This has without a doubt drastically limited profits for restaurant owners. Now, as restrictions begin to loosen, and restaurants are slowly beginning to reopen, many are still operating at limited capacity. The National Restaurant Association estimated that the industry would lose $225 billion between the months of March and June.

While it’s likely that large restaurant chains will have the capital to withstand both the shutdown and capacity restrictions, many independent, small restaurants – which make up almost two-thirds of the industry – will struggle to bounce back. According to restaurant analysts and operators, about 75 percent of independent restaurants will not be able to reopen.

For many, the next logical step in this situation has been to file a claim with their insurance company. While some policies outline an exclusion specific to a virus, the vast majority do not. During an occurrence as rare as a pandemic, it is encouraged to file a claim with your insurance company, no matter the exclusions that may be outlined in your business’ policy. 

Unfortunately, it is likely that all business interruption claims filed against insurance companies will be denied. By denying liability and delaying the processing of claims, insurance companies are able to profit. To further complicate this process, courts across the country have not yet been able to take on these cases due to closed courts, leaving the battle between business owners and insurance companies in limbo. 

Whether big or small, restaurants that have been affected by COVID-19 are urged to take the following actions:

File a Claim 

Many business owners are being advised by their insurance broker not to file a business interruption claim – but file one anyway. While some have been told that if they file a claim, they may be dropped by the insurance carrier in the future, others have been advised that if they file a claim, their premiums will increase upon renewal, even if they don’t get paid on that claim.

A key factor to keep in mind is that insurance companies and their agents don't work for you; they work for your adversary. Filing a claim is the only chance a business has to receive any sort of compensation for the loss of capital while closed. This is further proven by the many instances of insurance companies initially denying claims, and then paying them in full after a lawsuit is resolved. 

Since COVID-19 business interruption is a rare, worldwide occurrence, there is a greater chance that insurance companies will end up having to pay out for claims – no matter the exclusions. 

Track Your Financial Losses 

Connect with your accountant to prepare a statement that outlines the losses your business has suffered while it has been forced to close, or while it has been limited to take take-out and delivery. It is vital that this information is available in the event that your claim gets escalated to court and proof of interruption loss is required.

Continue to Fight  

No matter how hard your insurance company pushes back – don’t take no for an answer. Keep fighting and, at the end of the day, the government may have no choice but to step in and force insurance companies to pay out these business interruption claims. The restaurant industry is substantially larger than the insurance industry, despite the fact that the insurance space is dominated by a handful of multinational conglomerates. While this will likely be a “David and Goliath” fight, remain hopeful that the federal and state governments will be reasonable and fair to the millions of business owners in the restaurant industry. 

A potential downside is that compensation could take years, but the resulting decision could have a significant effect on individual businesses, and the broader restaurant industry. 

As industries emerge and begin to recover from the effects of the pandemic, it’s important for all business owners and leaders to thoroughly examine their current policy, and bring any questions to their insurance broker. Most likely, the virus exclusions outlined in policies prior to the pandemic were buried in the middle of documents, leaving many owners unaware of its presence. This is an opportunity for businesses to reassess their business plan, and put the pertinent measures in place to assure that they are covered for whatever the future may bring.