John Keener was counting on his insurance company to help pull him through tough times after his four Charleston restaurants were forced to close last month because of COVID-19 restrictions.
Keener had been through similar shutdowns during Hurricanes Irma and Matthew, and his business interruption insurance claims were always handled promptly.
"I talked to my insurance agent who told me my policy doesn't cover pandemics — only natural disasters and acts of God," Keener said, adding that if anything could be considered an act of God, COVID-19 surely qualified.
As Charleston-area hotels, restaurants and shops close their doors due to the coronavirus, owners who check their business interruption insurance policies, like Keener, probably won't like what they see — carriers have typically excluded financial losses due to pandemics since the SARS outbreak nearly two decades ago.
Losses tied to COVID-19 are estimated to cost U.S. small businesses between $220 billion and $383 billion per month, according to the American Property Casualty Insurance Association. Those amounts would wipe out up to half of the industry's surplus to pay all property and casualty claims, not just business interruption.
With that much money at stake, both sides are waging a fight over whether coronavirus-related claims should be paid.
U.S. Rep. Joe Cunningham, a Charleston Democrat representing South Carolina's 1st District, was among 18 members of Congress who urged insurance companies in a March 18 letter "to recognize financial loss due to COVID-19 as part of policyholders’ business interruption coverage," adding the payments would "help sustain America’s businesses through these turbulent times, keep their doors open, and retain employees on the payroll."
The nation's four largest insurance organizations gave the request a cold reception.
"If elected officials require payment for perils that were excluded, never underwritten for, and for which no premium was ever collected, catastrophic results will occur and we may deal with a second crisis: insurance insolvencies and impairments," Charles Chamness, president and CEO of the National Association of Mutual Insurance Companies, told Insurance Journal. Chamness was among the insurance executives who received Cunningham's letter.
Some states are trying to force insurers to cover the claims despite policy exclusions. New Jersey's legislature is considering a bill that would make pandemics among the damages that must be included in business interruption coverage for policies in force from March 9 forward. Massachusetts and Ohio are considering similar measures.
State Sen. Sandy Senn, a Charleston Republican who serves on the Senate Banking and Insurance Committee, said South Carolina should consider similar legislation, but something needs to be done sooner.
"I am trying to get folks relief from this crisis since businesses paid handsomely for business interruption insurance and claims should not be denied on a technicality," Senn said, adding such exclusions amount to businesses "purchasing insurance for nothing."
Sen. Sean Bennett, a Republican from Summerville, said he can "certainly understand the anxiety faced by businesses nationwide," but legislating specific insurance claims "sets a dangerous precedent."
"I believe that this is a temporary crisis that we will get through," said Bennett, who also serves on the Banking and Insurance Committee. "The federal relief package that was passed goes a long way to bridge the most critical threats facing businesses by providing affected workers with income replacement, and businesses with a cadre of resources — loans and grants — to get beyond the immediate challenges they face from a response-induced recession."
Future rounds of federal assistance could include payments for business losses, although no aid has been promised to date.
On a state level, the S.C. Department of Insurance has no authority to alter any contract provisions and can't force insurers to cover losses.
"We're asking insurers to use a little common sense and treat their policyholders like they'd like to be treated," said Ray Farmer, director of the agency.
Many policies require physical damage to a business before a business interruption claim will be paid. Senn, who is a lawyer, said she intends to fight that in court. She is reviewing several policies in advance of filing a declaratory judgment action.
"For food and beverage, we want to test a theory of whether COVID-19 has caused damage to the building since it can live on hard surfaces for up to 28 days," she said. "Therefore, the building is damaged via contamination."
The Oceana Grill in New Orleans' French Quarter is among the nation's first businesses to challenge a COVID-19 claim denial in court, seeking a judgment against Lloyd's of London. The restaurant's owners say it is clear the coronavirus contamination is "a direct physical loss needing remediation to clean the surface of the establishment."
The New Orleans restaurant also argues that a proclamation Louisiana Gov. John Edwards signed on March 13 banning gatherings of 250 or more people triggered the insurance policy's civil authority clause. Such a clause outlines how business interruption insurance will be paid if a government denies access to an insured property.
The mayors of Charleston, Mount Pleasant and Columbia have issued stay-at-home orders that have shut businesses. In Charleston County, nearly 12,000 displaced workers filed new unemployment claims in the two weeks since March 15. Gov. Henry McMaster has not issued a shelter-in-place order, although he has said that is still a possibility. A spokesman for the governor did not respond to a question about whether McMaster would seek to help businesses whose coronavirus-related insurance policy claims are denied.
The total financial impact COVID-19 will have on the Charleston area "will not be fully realized for several quarters," according to a report by commercial real estate firm Colliers. The report points out that many of the industries most impacted by the coronavirus — such as trade, transportation and tourism — play a key role in the region's economy.
Keener's economic tally is measured in hundreds of thousands of dollars, from lost business and ongoing rent and utility costs to spoiled food he's had to throw away. The 150 employees who used to work at his restaurants — the Oyster House and Charleston Crab House on Meeting Street, A.W. Shucks on King Street and another Charleston Crab House on James Island — were laid off because Keener could not afford the $80,000 weekly payroll.
"We've been in operations for 30 years and we were a little more prepared financially than a lot of restaurants," Keener said, adding he plans to reopen when the COVID-19 crisis passes. "There is going to be a lot of fallout in the restaurant industry unless insurance companies or the government step up to the plate."
Senn said she realizes taking on the insurance industry won't be an easy task.
"But if we get the right test case, I think our judges would look favorably in making sure that the intent of purchasing the insurance in the first place is not frustrated by the inability to collect when it is needed most," she said. "I don't want to get a lot of hopes up because this is a Hail Mary. But sometimes Hail Marys end up in touchdowns."