Nationwide Law Firm Faruqi & Faruqi, LLP Comments on Insurers Denying Coronavirus-Related Claims from Restaurants
By: Faruqi
Tags: Law, Lawyers, Pandemic, Corona, Coronavirus

When the coronavirus pandemic erupted in early March and more than 650,000 restaurants across the U.S. were forced to temporarily close their doors, the only financial lifeline for many owners was an insurance policy that, as far as they were concerned, would ride to the rescue and keep their business afloat. Except that is not what happened, and the impact across the restaurant industry — which claims to have lost $225 billion in revenue since the pandemic started — could be catastrophic and permanent.

Pandemics are not covered by insurance

The problem that many restaurants are facing is that their insurance policy has a business interrupt exception for pandemics, viruses and bacteria, which was something that regulators allowed after the SARS outbreak in the mid-2000s, commented a spokesperson from the Consumer Protection Litigation Group at nationwide law firm Faruqi & Faruqi, LLP. In other words, these restaurant owners would have been financially better off if their restaurant burned to the ground, or was wiped away by a flood, hurricane, tornado, or basically anything else that did not involve pandemics, viruses or bacteria.

Understandably, restaurant owners whose coronavirus-related claims are being denied — and there are many of them across the country — are more than upset: they are outraged, and they are taking the fight to both the political and legal arenas.

Influx of lawsuits to cover pandemic-related losses

A number of lawsuits have been filed by restaurant owners — and doubtless more are in the process of being filed — that demand insurers cover coronavirus-related losses, commented a spokesperson from the Consumer Protection Litigation Group at Faruqi & Faruqi, LLP. The plaintiffs are claiming that their insurance company did not have proper pandemic exclusions in the policy, or that the justification for the pandemic exclusion was not strong enough. In some cases, insurance companies are allegedly denying business interruption claims even though policyholders specifically and intentionally paid extra for pandemic coverage.

While insurance companies are digging in their heels — the potential payout would be enormous — some legislators are throwing their lot in with aggrieved restaurant owners. For example, New York has introduced State Assembly bill A.10226, which would compel insurers to extend Covid-19 coverage during a period of a declared state emergency. Notably however, the policy would only apply to restaurants (and other businesses) with less than 100 full-time eligible employees. Similar legislation has been introduced in several other states, including California and Ohio.

If this kind of legislation gets passed, then it is a foregone conclusion that there will be massive pushback from insurers, who will no doubt point to the fact that the U.S. Constitution specifically limits the power of states to interfere with private agreements.

While the situation for restaurant owners is grim to say the least — especially since despite some lockdown easing, the coronavirus pandemic is ongoing and the dreaded second wave is on the horizon — Faruqi Law thinks that political pressure from the highest levels could lead to some kind of compromise.

In April, President Trump weighed in on the issue and said that he would like to see insurance companies step up and be fair in helping restaurants, commented spokesperson from Faruqi & Faruqi, LLP. There is a huge legal battle that could take years to play out. Insurance companies have time on their side, but unfortunately most restaurant owners do not. In the very near future, they either need to have their insurance claims paid or receive federal or state help, or they will be out of business permanently, and millions of people will be out of work.