Massachusetts Could Require Insurance Companies to Cover Business Losses Caused by COVID-19

In the wake of the SARS epidemic of 2003, insurance companies were spooked. They knew a pandemic could mean widespread shutdowns for businesses across all sectors, which would therefore mean incalculable payouts to insurance policy holders in the form of business interruption claims. Instead of being left holding the bill, insurers decided to preempt the next pandemic.

In 2006, the Insurance Services Office (ISO) — an advisory organization that helps insurance companies assess risk and meet state regulatory requirements — submitted Form CP 01 40 07 06 to state regulators. The form is titled “Exclusion for Loss Due to Virus or Bacteria,” and it disallows commercial property insurance policy holders (which is the kind of insurance policy a restaurant owner would purchase) from filing business interruption claims based on losses or damage caused by a viral or bacterial outbreak.

Thanks in large part to ISO’s 2006 decision — and also because the CARES Act doesn’t do nearly enough to help restaurants struggling through the COVID-19 outbreak — restaurants across the country face an existential crisis.

Gov. Charlie Baker recently announced that Massachusetts restaurants must remain closed for dine-in service until at least May 4. Restaurant operators will have to wait at least another month until they can safely serve customers in their dining rooms, which means they’ll have to wait at least another month until revenue begins to flow again. (Takeout and delivery are allowed but insufficient.) Most operators can’t wait a month — indeed, a week without business can kill a restaurant — and many are now putting their hopes behind a bill recently filed with the Massachusetts state senate.

Titled Bill SD.2888, it would require insurance companies in the state to provide business interruption insurance to policy holders whose businesses have been negatively impacted by COVID-19. The bill — which was filed by Massachusetts state senator Jamie Eldridge — closely mimics a bill currently being considered by the New Jersey state legislature. Celebrity chef Thomas Keller — who owns the French Laundry, a wildly popular and influential restaurant in Napa Valley — recently sued his insurer for not covering losses due to COVID-19.

The bill currently has the support of 26 Massachusetts state legislators.

If enacted, insurers would be required to cover losses due to COVID-19, limited to the monetary limit of each individual policy, for businesses that employ 150 or fewer full-time workers. (For restaurant groups that employ more than 150 workers, but that operate multiple restaurants under separate LLCs with separate insurance policies, the individual restaurants with 150 or fewer full-time workers will also be covered.) But the bill would function more as a bailout of the insurance industry rather than a punishment: Insurers would pay out on claims but would then be reimbursed by the state of Massachusetts. Over time, the state would then be able to impose a surcharge on insurers licensed in Massachusetts to pay for the bailout. This could result in a nominal increase on insurance policy premiums; advocates of the bill do not expect significant spikes in premium costs.

“All this bill is designed to do is use the insurance industry as conduit for a government stimulus bill,” said Josh Bowman, an attorney whose clients include a number of restaurant owners in Greater Boston and who helped Eldridge craft Bill SD.2888. “We used the banks as conduit for a federal stimulus — what’s wrong with using the insurance industry to bail out restaurants?”

The CARES Act allows a business to borrow up to 250 percent of its average monthly payroll cost, but that money must be paid back. That amount of money might help a restaurant pay its employees for a month or two — and it’s still unclear whether restaurants will be able to re-open on that timeline — but it doesn’t factor in other expenses, such as rent, utilities, and insurance.

“The aid that the owners of businesses need to stay ‘afloat’ and be able to employ the people on the other side of the curve has to be proportionate,” said Asia Mei, who owns Moonshine 152 in South Boston and is a supporter of the proposed bill. “By this I mean that it can’t be small bandaids [in the form] of loans or stimulus checks that we are all competing viciously for to further indebt ourselves. We need fundamental, serious help that is directly calculated to the specific financial circumstance of every business.”

“The insurance battle is the one we need to ignite because it solves the most problems for operators,” said Michael Scelfo, who owns a trio of restaurants in Cambridge, who is represented by Bowman, and who also supports the bill. “If you calculate all of the monthly and quarterly insurance premium payments over the life cycle of business, we’ve all paid multiple times over what a normal business interruption claim would look like. So when we need it, it should be there.”

Every operator Eater spoke with for this story made it abundantly clear that they were not looking for a handout — they’re trying to survive amidst the chaos of a pandemic and believe the Massachusetts state government and the insurance industry should come together to help make that happen.

“My priority today is making sure my staff is able to eat and survive,” said Andy Husbands, another supporter of the bill. He owns the Smoke Shop BBQ restaurants in Boston, Cambridge, and Somerville, and he is also represented by Bowman. “And my longterm strategy here is to make sure the businesses survive.”

• Could This Be the Bill That Saves Massachusetts Restaurants? [BM]
• COVID-19 Coverage on Eater [EBOS]