Insurance Companies Refuse To Cover Restaurant COVID Loses— Updated
The Texas hospitality industry can’t seem to catch a break. The recent spikes in COVID-19 cases have forced restaurants to return to 50% capacity and bars to close again. The first round of the federal government’s Paycheck Protection Program (PPP) didn’t provide many restaurant and bar owners as much financial relief as they had hoped for. In fact, millions of PPP loan dollars were granted to well-funded businesses owned by the wealthy and highly connected. Making the fate of small businesses even more dire: insurance companies are rejecting interruption of business claims and denying coverage related to COVID-19 when restaurant and bar owners need it the most.
“There’s a crisis in the restaurant, bar and hospitality industry. There are many different facets to this issue, but one of the key parts to it is the requirement—for valid and great public health reasons—for shutdowns. It has left a lot of people on the brink of insolvency,” says Nate Whitehouse, national organizer for Thirst Group, which stands for The Hospitality Industry Re-Imagined Security Trust.
Before the pandemic hit, Nickel City, a neighborhood bar in East Austin “was on the upswing,” says owner, Travis Tober. In the previous year, sales increased by 23%. This year, the increase was expected to be 11%. “Then it was like a faucet was turned off.”
“It’s a tough situation, especially for bars and restaurants. We’re being labeled as the most dangerous activity,” he says. “We’re forced to sell merchandise to pay our monthly bills that still come in.”
Thirst is an advocacy group dedicated to helping hospitality industry professionals such as Tober thrive in spite of necessary coronavirus-induced business interruptions.
In theory, business-interruption insurance should shield owners from some of the financial effects of a disaster-related closing. However, it seems that some insurers are ripping loopholes into this safety net — which businesses have paid for — by denying claims. It’s a problem that transformed Whitehouse, co-founder of the luxury spirit company Drifter Spirits, into a community worker for a grassroots organization.
Bill Davis, a regional media representative for the Insurance Information Institute (Triple-I), a communications nonprofit supported by the insurance industry, contacted Houston Food Finder to present a counterargument. He says that if all the COVID-related business interruption claims were covered, there’s “potential for bankrupting the insurance industry.”
Davis echoes a statement made by Triple-I CEO Sean Kevelighan.“Global pandemic risks are uninsurable. Given the unpredictability and unimaginable potential for worldwide losses, insurance is simply unable to cover a global pandemic. This concept is made expressly clear in standard U.S. business interruption policies, which are reviewed and supported by state insurance regulators,” says Kevelighan. “The federal government is the only entity with the financial resources available to help businesses impacted by the government-mandated quarantines.” Updated, 7/31/2020, 5:35 p.m.
Whitehouse cites two common tactics insurance companies use to avoid paying out business-interruption claims. After the SARS epidemic in 2003, some insurers started writing exclusion clauses to eliminate coverage for pandemic-related damages. Others argue that business interruptions in response to COVID-19 aren’t required because the government has not mandated them. “They’re using very complex, nuanced legal arguments,” he says.
“This is all put together in a package for the providers and lawyers to understand, not the actual policyholders,” says Lindsay Rae Burleson, owner of Midtown bar Two Headed Dog. “Business owners are left to advocate for themselves with very little to no resources and have to become well-versed in a specialized field they’ve never even attempted to dip a toe in.”
COVID-19 restrictions demand Burleson stay closed, yet her business-interruption claims remain in limbo and her policy premiums rise. The cost for her Liquor Liability insurance has increased by 15% while the cost for her umbrella insurance, a policy that solely covers incidents that happen when a restaurant is open, such as a slip-and-fall injury, has increased by 40%. “The whole thing is exhausting,” she says. “If a hurricane wiped me out or a truck monstered through my patio on the day of the shutdown, I’d have no problems getting a claim approved.”
Burleson has found recourse through Thirst Group. It has given her the connections and support she needs to continue “poking the insurance bear,” she says.
This insurance issue affects hospitality businesses of all sizes, stresses Whitehouse, but he and other members of Thirst Group acknowledge that smaller operations, like Burleson’s, are disproportionately impacted.
“A lot of the smaller bars and restaurants don’t have the money behind them that the larger chains do. They don’t have huge investment companies behind them. They don’t have people (who are still making tons of money during this crisis) funding them,” says Aaron Lamprecht, a member of Thirst Group Texas and the Houston-area brand manager for Laws Whiskey House. “We’re trying to help the [hospitality businesses] that don’t have that support network.”
This is one of the many reasons, the advocacy group is calling for the government to intervene. “Restaurant owners are being put in an impossible position,“ says Whitehouse. “We’re asking [state legislators] to resolve ambiguous contracts and allocate a government fund that gives payments for valid claims where they are validly excluded.”
For Thirst Group, the fight is playing out in state legislatures across the nation. In addition to the Texas group, it has chapters in New York, California, Arizona, Illinois and Colorado, as well as several other states. And there are plans to branch out even further. “It’s a multi-state initiative because it’s a national problem,” explains Whitehouse. “No man is an island.”
But it’s an uphill battle. The coronavirus isn’t the only viral strain sweeping the United States. Whitehouse alludes to the country’s political divide. “The reality is we’re also seeing a World War II moment. And what that means is that if we’re a country together, we need to figure out the solutions together.”
Lamprecht puts it another way. “This is a bipartisan issue. Democrats drink and Republicans drink. Everybody’s gotta drink,” he says with a laugh.
Still, the problems facing the hospitality industry go beyond politics and cocktails. “This is not just about the fancy cocktail bar in Montrose, though I love the fancy cocktail bars in Montrose. It’s about the good old boy with the barbecue restaurant in Central Texas, the woman with the taqueria who is originally from Mexico, the Vietnamese family with the phở restaurant,” says Whitehouse.
“[The restaurant industry] runs through the core of American society,” he adds. “It’s a real cross-section of everything we are, and these people have had the rug ripped out from underneath them. We need to protect them and our cultural heritage.”
More information about the Thirst Group’s efforts can be found on its website.