While COVID-19 promises to test the bounds of many insurance policies, insurers appear prepared for a fight.
A downtown grilled cheese restaurant has launched a class action lawsuit against its insurance company after the business was denied coverage for lost income during the pandemic.
Attorneys for GCDC Grilled Cheese Bar filed a complaint Monday against Hartford Financial Services Group and Sentinel Insurance Company, alleging the insurer wrongly rejected the restaurant's claim for losses incurred after a mayoral order forced the business to close its dining room. The restaurant is the only plaintiff in the complaint, but more restaurants could join in the coming days.
The suit is part of an expected wave of litigation spurred by the pandemic, as restaurants in particular struggle to recoup staggering losses arising from mandatory restaurant closures and stay-at-home orders. D.C. sports bar Proper 21 and Rosslyn eatery Guajillo have filed similar suits.
But while COVID-19 promises to test the bounds of many insurance policies, insurers appear prepared for a fight.
Insurance companies began adding virus exclusions to their policies in 2006, three years after Hong Kong-based hotel group Mandarin Oriental won a $16 million settlement from its insurers in the wake of the SARS outbreak. Today, virus exclusions are common in business interruption policies, including the one held by GCDC.
But attorneys for the restaurant are mounting a challenge anyway, saying the insurer denied the restaurant's claims based on "indecipherable" language in the policy.
"Had [GCDC's insurers] wanted to exclude the risks of a pandemic — and the necessary public health counter-measures that would mandate business closures and population-wide social distancing — they should have done so plainly, as they did with numerous other risks," the complaint says. "But they did not."
Sentinel and Hartford — a financial services giant usually referred to as The Hartford — denied the restaurant's claim in part because the restaurant failed to identify a "direct physical loss" to its property, according to the suit. They further contended that Mayor Bowser's order to end dine-in service wasn't a direct response to a "covered cause of loss to property in the immediate area" — such as a fire on the restaurant's block — and GCDC's policy excludes virus-related damages "unless the virus results in a specified cause of loss."
A spokesperson for The Hartford did not immediately respond to WAMU's request for comment.
The coronavirus pandemic has prompted a national conversation about insurance companies' responsibilities to policyholders during the crisis. Last month, 18 members of Congress sent a letter to heads of four insurance trade groups, urging the industry to cover COVID-19 claims. President Donald Trump doubled down a few weeks later, saying in a press briefing he "would like to see the insurance companies pay if they need to pay."
Industry leaders have strongly resisted those calls, with support from at least seven U.S. senators and the National Association of Insurance Commissioners.
"Insurance works well and remains affordable when a relatively small number of claims are spread across a broader group, and therefore it is not typically well suited for a global pandemic where virtually every policyholder suffers significant losses at the same time for an extended period," the NAIC wrote in a statement last month.
The American Property Casualty Insurance Association estimates that COVID-19 is causing the country's small businesses to lose many more billions of dollars per month than the industry charges for insurance premiums.
But as restaurants stare down an unprecedented threat to their industry, some state officials are advocating on their behalf. Legislators in New Jersey briefly considered forcing insurers to pay out COVID-19 claims until companies agreed to grant extensions on premium payments. Several other states are considering similar legislation.
So far, D.C., Maryland and Virginia are not among them. That leaves the matter in the hands of the courts — many of which are also temporarily closed due to the pandemic.