Chefs File Lawsuits as Insurance Companies Reject COVID Claims

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Delores Tronco-DePierro closed The Banty Rooster, her three-month-old New York City restaurant, on March 15. The next day, she filed a business interruption insurance claim with Greenwich Insurance Company. Her claim was denied three days later.

“The reason for the denial was that there was no physical damage to the property,” she says. “I had no known cases of COVID-19 in the restaurant. They told me, ‘There’s nothing we can do to help you.’”


Tronco-DePierro’s story mirrors those of millions of small business owners across the country, many of whom have been paying business interruption insurance for years or even decades.

“When I looked for a policy, I went to a broker and said I wanted comprehensive coverage,” says Tronco-DePierro, who picked up insurance to cover workers compensation, employment liability, health and dental policies for managers, and business interruption.

But what she and many other restaurants owners soon learned was that the concept of comprehensive coverage was an illusion. As it became obvious that restaurants would be forced to close, many insurers sent out preemptive letters stating that they would not pay pandemic-related claims. Claims not immediately denied are held up by lengthy investigations.

As a result, there are now a number of lawsuits and legislative efforts working to hold insurers accountable for business interruption claims. Plate spoke with attorneys, restaurant owners, and industry insiders to understand how those efforts are gaining traction and their potential for business owners.

Why Coverage Is Being Denied

At its most basic, business interruption insurance is designed to make up for lost revenue in the event of a disaster. Fires, flooding, and natural disasters are some of the more common triggers; many insurers have categorized the COVID-19 pandemic as an “Act of God” outside their policy coverage.​ Plus, after the SARS, MERS, and H1N1 outbreaks in the early aughts, insurers began to add to clauses in their policies that exclude coverage for viruses, communicable diseases, and pandemics. “Most insurers are taking the position that they have not priced that into coverage,” says Erik Josowitz, analyst and senior vice president of technology at InsuranceQuotes. “In cases where viruses are explicitly excluded, claims are being summarily denied. In cases where they’re not excluded, I’m getting anecdotal stories that those cases are also being rejected.” Blanket rejection has been the insurance industry’s de facto position since early March, when the insurance litigation firm Zelle released a white paper on Coronavirus coverage. Coverage denial, according to insurers, stems from virus and pandemic exclusions found in policies and the definition of direct loss and property damage.

Insurers insist that the coronavirus cannot inflict property damage. “The fact that the virus may be cleaned without essentially altering the property is evidence that there is no initial damage,” wrote Shannon M. O'Malley, a partner at Zelle, in the white paper.

Josovitz says that restaurants with the best chances of proving damage are those that had an employee or guest with a COVID-19 diagnosis and therefore had to close to disinfect surfaces, or clean the HVAC system. But restaurant industry groups and litigators argue a much more expansive definition of damage.

BIG Lawsuits and Lobbying Efforts

On March 16, John Houghtaling II filed the first Coronavirus-related insurance lawsuit on behalf of the restaurant Oceana in Louisiana State Court. Instead of damages, he’s seeking a declaratory judgement to establish precedent in the U.S. court system. “The law in the statement says it’s inappropriate for insurance companies to deny the dangers of the Coronavirus,” Houghtaling maintains.

Along with chefs Daniel Boulud, Thomas Keller, Wolfgang Puck, Dominique Crenn, and Edouardo Jordan, Houghtaling organized to form the Business Interruption Group, or BIG, a group that is part lobbying effort, part litigation, and part media blitz. The message: that the virus creates “a dangerous property condition.”

“I liken it to the infiltration of gas vapors in a restaurant,” says Joe Taylor, a litigation associate at Helbraun Levey, a New York law firm that has aligned with BIG. “Courts have said that gas vapors cause physical damage. Yes, you can set up a fan and air out a space, but until that happens, it constitutes physical damage to the space. Plus, part of coverage is helping clean up hazards.”

Taylor adds that even though the virus can be cleaned from surfaces, it takes more than a simple clean-up, and the wording of local and state mandates specifically called out the physical damage inflicted to businesses by the Coronavirus.

Houghtaling says that insurers have been engaging in a disinformation campaign for moths, leading restaurant owners to believe all policies have viral exclusions and misrepresenting civil authority orders as they relate to damage. He filed for another declaratory judgment in California on behalf of Keller and The French Laundry, whose policy specifically includes viral and pandemic coverage.

BIG representatives presented a legal brief to President Trump. They have gathered support from more than 1,000 restaurants and industry groups, and are working to rally more attorneys general and lawmakers to their cause.

Litigation Across the Country

At the same time, law firms across the country are filing lawsuits on behalf of restaurant owners.

In Chicago, Romanucci & Blandin represents Chef Tony Priolo and his restaurants, Piccolo Sogno, Nonnina, and Maillard Tavern. His business interruption policy at Maillard Tavern has no viral exclusions, making it an ideal case to establish precedent in Illinois.

“People need to be educated about what their premium dollars have been paying for,” Priolo says. “For policies where there’s civil authority coverage, denials can’t be considered in good faith without an investigation. Who can say we haven’t suffered a loss? We have employees in the hospital now. Family members of employees have passed away. You don’t know when they contracted the virus.”

Attorneys at Romanucci & Blandin are pursuing individual cases, according to a restaurant’s policy quirks and varying circumstances, rather than a class action suit. They’re also seeking full pay-outs of lost business claims rather than a settlement. “The purpose of insurance is to be made whole. Our aim is for our clients to be made whole,” asserts Antonio Romanucci, principal and partner at Romanucci & Blandin. “I would expect insurance companies to abide by language in their contracts, to be transparent, and not to hold back premium money that is owed. We’re looking for full restitution for clients.”

In Philadelphia, the firm Golomb & Honick is taking a different track. On April 10, one of the partners, Richard Golomb, filed a declaratory action on behalf of Randy Rucker’s RiverTwice—notably before Rucker even filed a claim.

“We knew it was going to be denied,” Golomb says. “Time is of the essence for many if not most small businesses. It doesn’t make sense to sit back, make a claim, and have them tell you they’ll investigate the claim.”

Rucker, like Tronco-DePierro, has a brand-new restaurant and a policy with a viral exclusion. But Golomb argues that viral exclusions don’t apply here. “The shutdown was caused by government mandates on the local, state, and federal levels,” he notes. “Through civil authority provisions, coverage is mandated by the policy in case of government shutdown. You can’t deny based on viral exclusion for policies that have civil authority provisions.”

Golomb filed the declaratory action in federal court and is coordinating with other firms in Philadelphia and other federal districts to establish law and potentially move toward a class action suit. He believes that settlements, and not full restitution, are a more likely outcome, with insurers and the government working together “to make people whole.” In that scenario, for example, if a business sought a $100,000 business interruption claim, perhaps $75,000 would be covered by insurers and the remaining by PPP or other relief funds.

Other class action suits are bubbling up in Florida and elsewhere. But lawsuits could take months—and in some cases, years—to resolve. The broader hope for the litigation is to establish legal precedent that will compel insurers to pay or at least bring them to the negotiating table.

Countering the insurance industry’s formidable lobbying efforts and deep pockets will take a pressure-from-all-sides approach, embodied by BIG’s work.

“The insurance industry has $822 billion in cash reserves to pay claims, and they’re not paying a penny. That’s what their tactic has been thus far, to hold onto the money. They would rather give it to defense lawyers to fight the claims,” says Houghtaling. “If there’s some sort of legal, political, or settlement solution in the next 100 days, businesses across American will fail. We don’t have time for lawyers to fight over it.”

Possible Legislative Solutions

BIG is not advocating to back-date policies to include pandemic losses. Houghtaling doesn’t think that’s possible or even constitutional, even as states, including New Jersey, New York, Pennsylvania, Louisiana, Ohio, Massachusetts, and South Carolina have introduced legislation that would compel insurers to pay for all claims, including those with pandemic exclusions.

Romanucci has heard rumblings that some states will require insurers to at least pay back premiums. “When you pay for insurance, you pay in advance, and because Tony hasn’t been open for five weeks, insurance companies have been sitting on pre-paid premiums where it’s impossible to have a claim,” he says of Priolo’s claim. “Let insurers pay back premiums. They can do that. But it will not absolve them. I would council my clients not to cash premiums until we look at the language and any waiver of rights. Businesses need to be very careful.”

BIG sees federal action as its best bet and has drafted a bill that will create an opt-in program for insurers who are willing to pay certain claims and negotiate others. It demands that insurers pay fully for claims made on policies that include civil authority and pandemic coverage, and do not explicitly exclude coverage for viruses and other communicable diseases. There will be millions of policies in a grey area, and the bill proposes that those can be settled with insurers owning a portion of claims. Houghtaling acknowledges that not all businesses qualify for claims, specifically those with certain viral and pandemic exclusions and without civil authority coverage.

It’s generally understood that the insurance industry does not have enough money in its reserves to cover all claims—a figure insiders estimate to be $220 to 383 billion per month.

“Maybe they don’t have enough money, but that’s a different question than withholding the money they owe,” says Haughtling.

Insurers could ask for a bailout, as the airlines have done. The government also could step in and establish a mechanism to pay policyholders. But the prospect of that latter is deeply troubling to Jeff Katz, owner of New York’s Crown Shy. “If the government puts out a pile of cash, and especially if they hand it over to a third-party agency, we’ll be dealing with PPP all over again. It will go to big businesses and friends of the president. The people who need cash won’t get it,” says Katz, who did not receive first-round PPP funding for his restaurant. 

There’s also talk of establishing a public-private program similar to the Terrorism Risk Insurance Act (TRIA). TRIA was formed after 9/11 to provide property coverage in the event of a terrorist attack. The concept of Pandemic Risk Insurance Act (PRIA) has been proposed to cover current and future claims.

“Pandemics, by nature, are geographically everywhere. One one hand, that creates a giant risk pool. But the problem for insurance companies is if everyone is making claims at the same time, then their pricing would be well outside of what small business can afford,” says Josovitz from InsuranceQuotes.

Next Steps for Business Owners: Get Loud

Where are restaurant owners left in the meantime? Should they join litigation? Sit tight?

First, Haughtling recommends reviewing your policy carefully. Early on, the insurance industry led many brokers and businesses to believe that all policies included viral exclusions, which isn’t the case. If you have not yet filed a claim, do so immediately, even if you expect to be denied. First, aggregated, small business claims could help the government assess how much insurers owe in claims and whether it will need to step in to fund a bailout. Romanucci also says a denial letter could be an important piece of evidence should you decide to file a suit.

If you’re one of the estimated 20 percent of restaurant owners whose policy doesn’t have a viral exclusion, you may be a good candidate for a lawsuit.

Helbraun Levey has not yet filed lawsuits for any of its clients, but it is working to find restaurants that would be ideal for future litigation. “I’m a litigator. It’s not natural for me to take a wait-and-see approach. But this is so unprecedented,” says Taylor. “But the minute it becomes apparent that litigation is necessary, I have several drafts prepared. Our position is that it’s best to fact gather and be prepared for the day we need to start filing.”

Litigation isn’t right for every business. Katz says restaurants’ collective voice is the industry’s best asset right now. Sign up for updates from BIG, call your attorney general or senator. Phone in a favor from the governor or lawmaker who frequents your restaurant. Talk to your peers, and make sure they’ve received and filed their own claims.

“I don't have the resources as a small restaurant to take on a lawsuit, nor do I want to spend energy on litigation,” says Tronco-DePierro. “I’m just hoping that by sharing my experience, it will get the attention of lawmakers and journalists and the general public. Anyone who cares about small businesses that give color and soul to cities, needs to make some noise about it and put pressure on lawmakers and insurance companies to do the right thing. Even something small would be immensely helpful.”

Caroline Hatchett is a New York City-based food and drinks writer, who also happens to host the world’s only casserole lifestyle podcast.

Sorry to tell you this, but the insurers are correct to deny these claims. A government fiat can't be priced into a policy like this. Consider this given what the restaurants are claiming: if the restaurant failed an inspection and was closed by the government, the restaurant could then file a business interruption claim under the policy you're envisioning. Why would that be appropriate?