By Patrick Connelly, originally published in Buffalo Business First on Apr 18, 2020, 8:32am EDT.

Fine print on policies has businesses, insurers and legislators in a quarrel

If ever there was a business interruption on a national scale, this is it.

But some businesses found insurance policies they’ve had for years are not paying dividends during the pandemic brought on by COVID-19.

Proposed legislation in New York and six other states as of this past week was on the table to potentially overturn denials and pay businesses for pandemic-related losses. Pushback from the insurance industry, though, could see none of it come to pass.

Meanwhile, attorneys have assisted businesses as they examine options.

Left in a lurch

One way to try obtain a payout is through litigation, said attorney Christopher Dore of Chicago-based law firm Edelson PC.

The firm has heard from multiple businesses nearly every hour that had insurance claims denied. Others, he said, were told by brokers it wasn’t worth their time to even file.

“We are hearing from businesses that are really frustrated and fairly terrified about the prospect of what they’re facing,” Dore said. “This is obviously coming as a shock and adding a great deal of anxiety to business owners.

“Most of the businesses that we are talking to are small- to medium-sized businesses that had an expectation and a reliance on this insurance that it would come through in the moments that they really needed them.”

Dore said business owners are surprised to find out the providers they have had long-term relationships with refuse to cover losses.

“They’re getting just outright denied,” he said.

The Edelson lawyers intend to litigate the terms of the policies to demonstrate the insurers should be paid.

Policies vary by insurers and sometimes are customized for businesses that operate in certain industries. However, Dore said the core concepts of insurance should be the same.

“In many instances, it is a government shutdown,” he said. “It is a physical barrier that is keeping their businesses from operating and those are the types of situations that this insurance is supposed to step into and cover. … We think the courts will find that these policies were designed to provide coverage and protection in an instance such as this.”

Questions on coverage

Some businesses may qualify for business interruption coverage through their property insurance or, if it comes into play, worker’s compensation or general liability insurances, said attorneys Kevin English and Ryan Lema of Buffalo-based Phillips Lytle LLP.

“I think every business has questions and the early reports and early advice coming out of the insurers was no coverage and that they were taking a position that the policies out there would not provide coverages for this kind of event,” English said. “I think that that sort of blanket approach doesn’t apply.”

Clients of the firm, he said, have been interested to see if available coverage they pay for would have them qualify. And if they are covered, he said it’s crucial to file a claim right away so the provider doesn’t later argue they waited too long.

“You certainly have to look at every policy and see what the coverages are and what the exclusions are,” English said.

Extensions within a policy could also provide coverage for some, Lema noted.

“Most of the property policies do contain a business interruption coverage part,” he said. “There may be additional coverage extensions for things like orders of civil authority that shutdown properties.”

Lema said some also explicitly outline coverage for viruses.

“I think this type of situation would fall squarely within that coverage and that’s something that some policy holders may have,” he said.

The other side of the coin

A group of attorneys from another Buffalo firm, Hurwitz & Fine PC, wrote a letter to the state Assembly that says its bill shouldn’t be adopted.

“The economic damage caused by this cataclysmic event cannot be resolved by the Property & Casualty Insurance Industry. Believing so will create a crisis of insurance insolvency and illiquidity that is dangerous, misguided, and short-sighted,” attorneys Dan Kohane, Lee Siegel and others wrote.

Kohane also posted the letter on LinkedIn.

The attorneys go on to comment on the bill’s various sections. According to their findings, fewer than 2 percent of New York businesses would be exempt from being paid for losses if the bill passes.

“Carriers will be required to foot all business income loss for virtually every business in New York, while somehow attempting to maintain liquidity to pay claims for bargained-for personal and commercial property loss. … If insurers are fully reimbursed for providing coverage that their policies do not afford – and businesses are reimbursed for all of their business loss – the financial impact will be astronomical,” the attorneys said.

Kohane and Siegel, who represent insurers in their practices, told Buffalo Business First this week their stance remains the same.

“The legislative proposal is to change the paradigm; that is to enforce insurance companies to pay for claims for which they have not accepted a premium and didn’t have a policy for,” Kohane said.

A reversal would alter the industry’s already-established contracts with the entities they insure and make carriers pay for something they didn’t plan for, he said.

“That’s the major problem with this,” he said. “It would impose on insurance companies.”

The companies, he said, act in good faith and respond to claims as they come in.

Siegel said that following previous virus outbreaks such as what was brought on by SARS-CoV-1 in the early 2000s, many more offerings became available which businesses could buy coverage for.

“There were and are insurance products in the marketplace that were intended to respond to events like this,” he said. “So it’s not like there was no opportunity for businesses to protect themselves against this risk.”

Legislative initiatives are undermining the scope of the problem, according to Siegel. Studies he read cited the insurance industry’s capital on reserve would be decimated in approximately three months.

“They’re trying to have the insurance industry solve something that only the federal and state governments can solve,” he said.