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Your insurance policy could help you more than you realize.

Here’s what your restaurant business insurance may (or may not) cover during the coronavirus pandemic

Lawyers weigh in on whether restaurants will be able to cash in on business interruption insurance during the COVID-19 panic

As restaurants have shut down across the United States in response to city and statewide coronavirus-related lockdown mandates, business owners are wondering if this disaster is covered under their business insurance protection plans. And while there is likely no pandemic provision (or exception) in any restaurant’s insurance coverage, business owners are hoping for relief in the global health emergency that could result in economic catastrophe.

One restaurant, Oceana Grill in New Orleans, along with its parent company, Cajun Conti, has filed a lawsuit seeking a judgment for its insurer to cover losses incurred while most restaurants are closed down in Louisiana. The restaurant is seeking relief based on the fact that their insurance company covers “direct physical loss” from outside forces including “the event of the businesses closure by order of Civil Authority.”

While Oceana Grill is one of the first restaurants to file a lawsuit against its insurance company in an attempt to reclaim some of the losses incurred during the pandemic, it will likely not be the last.

Below, lawyers answer insurance-related questions that restaurant owners and franchisees might have about their insurance claims related to the COVID-19 pandemic.

What type of insurance could possibly cover loss of business due to COVID-19?

The key type of insurance to be on the lookout for, lawyers say, is business interruption insurance, also known as income interruption insurance. As the name suggests, business interruption insurance compensates your business for interruptions that force you to close your doors temporarily. Usually covered under this claim is fires, weather disasters and other unexpected phenomena. Not usually listed in these insurance plans? Pandemics.

“I assure you that the next iteration of insurance contracts will have worldwide pandemics as an exclusion, but right now many of them don’t,” said Robert Zarco, a business litigation attorney that represents franchisees of more than 300 restaurant companies. “We have developed substantial arguments that reflect that there is a strong viable chance of getting recovery considering the language of these policies.”

What are the requirements of a business interruption claim?

The catch with using business interruption insurance is that most of these types of insurance plans will require physical property loss or damage in order to cash in on the claim. However, in the case of the COVID-19 pandemic, in many circumstances, even though a restaurant property might not be physically damaged from a fire or flood or other natural disaster, it could still be covered under physical loss.

“I think they can meet this direct physical loss requirement in certain circumstances if they are forced to shut down and have no access to their restaurant,” Jonathan Sokol, a business litigation attorney with Greenberg Glusker Fields Claman and Machtinger law firm said.

“It’s different if they are still operating by serving takeout because then you’re not actually shut down, you’re making less money.”

What should I be looking for in my insurance coverage?
There are certain keywords and phrases to be on the lookout for in the language of your insurance policy. These are the types of insurance coverage that restaurant owners should be asking their insurance brokers and lawyers about.

  • Crisis Management Coverage covers times of crisis that might include a violent act like a break-in or armed robbery, as well as a restaurant being shut down for food contamination or communicable disease, said Jason Upton, president of the Upton Group, an insurance agency specializing in restaurant and delivery insurance.
  • Contingent Business Interruption Insurance is a specific type of business interruption insurance that covers indirect loss caused by “the inability of a supplier to perform his/her obligations with the insured (business owner) due to no fault of his own,” Robert Zarco’s law firm said. A government lockdown of an entire city or state could be covered under this type of insurance.
  • Civil Authority Coverage is when your business is interrupted by federal, state or city government mandate.
  • Impossibility of Performance and Frustration of Purpose is, just like it sounds, when a business cannot “perform a contractual obligation” through no fault of their own that they could not have foreseen, Zarco said.

What are the odds that my insurance company will cover coronavirus?

Unfortunately, because no one — not even insurance companies – could have predicted the scale of a global pandemic, there is likely no specific language that pertains to COVID-19 in business insurance policies.

Therefore, there is a lot of creative leeway for both insurance companies to claim exclusions, but also for business attorneys to find loopholes in that vague language for restaurants to take advantage.

“I think that 10-20% of policies will cover these restaurants as clearly written,” Zarco said. “But by using the arguments that we’re making? I would say that number could go up to 60-70%. This is going to create huge legal precedence.”

Sokol seemed less optimistic, saying that “insurance companies are going to dig their heels in,” claiming that their insurance policies are not meant to cover global health incidents like this, and that the government should be compensating businesses instead.

What is a virus exclusion?

Although most insurance policies won’t specifically mention pandemics, they might have a virus exclusion policy.

“When we had the SARS epidemic over a decade ago, the insurance industry became concerned with viruses,” Sokol said. “You sometimes see these referred to as pathogenic organism exclusions, which includes any bacteria, yeast, mildew and viruses.”

Even though virus exclusions are common, Sokol said that “depending on the wording” of the contract, there might easily be a way around these exceptions.

Is my restaurant covered under the “Act of God” defense?

It is uncertain whether or not the “Act of God” defense, also known as a “Force Majeure,” would be applicable in this case. An Act of God usually covers unforeseeable natural phenomena like floods, fires, earthquakes and other natural disasters, as well as businesses that were affected in the aftermath of 9/11.

“The punitive measures imposed upon us all include the required closure of businesses, imposed travel bans, etc.,” Zarco said.  “Clearly, none of this is within the control, fault, or negligence of the businesses gravely affected, but instead a government imposition of its civil authority for the benefit of the communities at large.”

But the Act of God clause is more complicated than it may seem.

“It is typically defined as a natural disaster and I don’t think a virus would be covered under that,” Sokol said, claiming that there would be exceptions if a restaurant owner contracted the virus and/or did not recover.

Are certain types of restaurants more likely to be covered than others?

Lockdown mandates require restaurant dining rooms to shut down, but do not require restaurants to stop doing takeout or delivery.

“For higher-end restaurants, it’s not practical for them to do takeout,” Sokol said. “In that circumstance, the restaurant or bar could argue physical loss of property because they can’t do takeout.”

What should I be doing to collect an insurance claim?

Both lawyers suggested documenting everything in detail if your restaurant is forced to close temporarily. Do not necessarily rely on the word of your insurance broker, and call a lawyer as soon as possible. 

“There’s no reason to sit back because then they’ll lose [whatever claim] they have,” Sokol said.

Contact Joanna Fantozzi at [email protected]

Follow her on Twitter: @JoannaFantozzi

For our most up-to-date coverage, visit the coronavirus homepage.

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