Seattle, WA — Kimberly Johanson is depending on two things to keep her exercise studio alive: streaming classes on Zoom and the pay-out from her business interruption insurance claim, triggered by the government’s Covid-19 restrictions in March.
“The outlook, it’s a little scary to be perfectly honest,” says Kimberly.
It’s scary now because, after paying about $2,000 a year for coverage, Kimberly’s claim was denied.
“It was extremely disappointing, it was extremely disappointing,” says Kimberly.
See, from gyms to restaurants, our investigation has not found a single employer who’s been paid a Covid-19 business interruption insurance claim.
“We do deserve the support from our insurance that we’ve been paying into for years to help us out right now,” says Kimberly.
Kimberly’s policy is from The Hartford. Like most businesses its “all risk” business interruption policy covers physical loss of, or physical damage to, covered property.
Words matter here. Many business owners believe physical loss means just that: since they physically could not open because the Governor’s mandate prevented it, they should be able to have their claims paid.
“If we couldn’t use the space because of vandalism or we couldn’t use the space because we’re not legally allowed to be in here, that shouldn’t make a difference,” argues Kimberly.
Amy Williams-Derry is a lawyer representing Kimberly in a lawsuit against The Hartford. She represents 30 other businesses in similar lawsuits, and dozens of others in cases waiting to be filed. Williams-Derry says the insurers' case is shown in its denial letter. It reads:
“Since the coronavirus did not cause property damage at your place of business or the immediate area, the loss is not covered.”
“They completely ignore physical loss. It’s not even in the denial letter. They don’t address it, they don’t resolve it,” says Williams-Derry.
Michael Barry, with the Insurance Information Institute, says the industry is already facing billions of dollars in claims from hurricanes-floods-wildfires and riots.
“Global pandemics are basically uninsurable,” he says.
An estimate from the industry group, American Property Casualty Insurance Association, places closure losses for small businesses with 100 employees or less as high as $431 billion dollars per month, while they pay just $71 billion in premiums.
“The direct physical damage makes sense because none of these policies were intended for a situation when all of the businesses all were going out at the same time,” says Barry.
But did businesses ever have a chance of insuring against a pandemic?
“Almost all of the policies since 2005 or so, after SARS, started the process of having this as a boilerplate exclusion in all of these risk policies for business interruption,” says Washington Insurance Commissioner Mike Kreidler.
According to Kreidler, only two insurers offer coverage for a pandemic event through their base policy. He says any fixes through state law are premature.
“Wait for the smoke to clear before we start to make changes. The industry - we need the industry but we certainly expect them to live up their policies,” says Kreidler.
While courts have sided with insurance companies in these cases filed across the country, Kimberly’s attorney says she needs just one judge to see things their way.
“My view is they’re not going to pay until a federal judge or state court judge says - interprets that policy, looks them in the eye, and says ‘you have to pay,’” says Williams-Derry.
We reached out to The Hartford, Kimberly’s insurer and a spokesman tells KIRO 7, in part:
“We pay often and a lot – when there is a storm, fire or anything else that is covered by a customer’s insurance policy. Tragically, millions of businesses across the country have closed their doors because of government-ordered shutdowns. Unfortunately, viruses are generally outside the scope of business interruption coverage due to the absence of any physical damage. These policies do not cover this exposure and, accordingly, premiums were never collected for it.”
Now, Kimberly’s hopes of survival rest not on hard work, ingenuity or even Zoom, but rather on how a judge rules on the interpretation of just a few words on her policy.
“I think the landscape of Seattle small business will be drastically different in the next couple months if we don’t get some support,” says Kimberly.