Restaurant Owners Win Business Interruption Insurance Claims

Written by Aaron Wise
Sunday, July 5, 2020 at 03:26pm CDT

Most insurance companies have denied claims from restaurant owners resulting from the COVID-19 pandemic. Business owners counterclaim they are entitled to benefits in Business Interruption Insurance policies that protect against lost income after a covered peril affects a policyowner.

Insurance companies typically cite the contract clause of force majeure as justification for denying claims. Force majeure suspends both parties from their contractual obligations during the time in which an extraordinary event is occurring beyond the control of the parties. Force majeure events include wars, riots, third-party criminal acts, or other so-called “Acts of God,” including epidemics.

Many restaurant owners have rallied together, demanding Business Interruption Insurance benefits due to the catastrophic fallout from the coronavirus. As a result of these efforts and other legal battles in courts around the world, some restaurant owners have successfully collected some of their Business Interruption Insurance claims.

• For example, restaurateur Stephane Manigold sued insurer AXA after a government order forced her to close her establishment. In late May, she won in court with a ruling confirming that she was eligible for two months of lost revenue. AXA threatened to appeal the decision, but ultimately settled in a payout to Manigold.
• Another positive example arrived when the United Kingdom’s Financial Conduct Authority agreed to bring a lawsuit into London’s High Court that could benefit restaurant owners claims on Business Interruption Insurance.
• A third victory arrived when the U.S. Bankruptcy Court for the Northern District of Illinois ruled that that a restaurant lease’s force majeure provision partially excused the restaurant owner’s obligations to pay rent during the pandemic.
• Other restaurant owners have had success lobbying local representatives. In New York, Assemblyman Robert Carroll has sponsored legislation that would make small Business Interruption Insurance policyholders eligible for coverage. “The reasonable small business purchases this insurance for times just like this when, at no fault of their own, because of a natural disaster, their business is interrupted,” Carroll said.

If a restaurant owner is considering fighting to win a Business Interruption Insurance claim, the following tactics can be resourceful.

• There is power in numbers. Class action lawsuits and other group actions are powerful methods for restaurant owners to combine their legal defenses, and limit attorney’s fees.
• Maximize losses claimed from covered perils. Covered perils include, but are not limited to, events that physically occur to a building. These include fire, wind, theft, falling objects or lightning. Owners can check their policy documents for a full list of events which are guaranteed to be covered for benefits. If any of these events have occurred, in addition to non-physical perils, business owners should consult a bar-registered attorney regarding how much of their loss they can say have occurred from physical events.
• Write to representatives. Elected officials such as Congresspeople have the power of the purse for assisting their constituents. Already this year, Congress has disbursed $510 billion to employers as fiscal assistance, in addition to $1,200 Economic Impact Payments. They have also introduced the $120 billion Restaurants Act of 2020 which would provide unprecedented fiscal relief for restaurant owners. Writing to one’s representative is a civic right; any citizen may express their concerns sternly and frequently, in writing.
• Have a lawyer review the contract’s precise language. As mentioned above, restaurant owners with policies from AXA were able to collect winnings because their policies were “not 100% clear in their language.” The burden of proof is often on the insurer, not the claimant, to justify why COVID-19 is exempted in the contract.
• Failure to notify. An attorney can further advise whether an insurance company has an obligation to inform the policyowner about a force majeure event. If the contract requires proactive action from the insurance company in the event of  force majeure, the policyowner might be able to use a failure to provide notice as grounds for a legal claim.
• Quantify how much revenue loss is attributable to COVID-19 versus covered perils. As an example from one lawyer, “Some proportion of the U.K. businesses’ losses could not properly be said to have been caused by Covid alone.” Determining the percentage of loss attributable to coronavirus could allow the policyowner to seek damages for the percentage not attributable to force majeure.

According to the City of New York, in the absence of other options, restaurant owners “should call your insurance provider with questions about your specific plan and whether it covers event cancellations. You might also want to ask your insurance provider about loss of profits cover, ‘key person’ insurance, whether your current levels of coverage are adequate, and whether any exclusions may be relevant.” NYC government also advises that Business Interruption Insurance often excludes pandemic events: “Business interruption coverage typically can only be triggered if you have property loss that leads to the business interruption.” 

A comprehensive guidebook regarding COVID-19 and Business Interruption Insurance is available from the NY Department of Financial Services. Consult a licensed attorney to discuss any of the issues in this article in terms of how they might apply to your specific situation.

Photo by David Emrich on Unsplash