Double-whammy for restaurants hammered by coronavirus. Insurance likely won’t cover losses
Daniele Mastagni has been battered by the globe-trotting coronavirus on two shores. His elderly parents are on lockdown back in Italy, and like many other restaurant owners across South Florida and the nation he’s trying to stave off closure of Trattoria Luna after learning his insurance doesn’t cover lost business income due to the pandemic.
“The insurance companies, they are always telling you no. They tend to say you are not covered for this or not for that,” he said, preparing for another day of takeout service in a Kendall restaurant that since early 2001 has provided an Italian dining experience. “I think the insurance [industry] has to understand that this is a magnitude that no one has ever experienced.”
The insurance industry does understand the magnitude. It is why since the SARS epidemic in 2003, big insurance companies began writing into their policies exclusions for loss of business income due to viruses, bacteria and pandemic outbreaks. The surprise for Mastagni and other restaurant owners is like the surprise some business owners had after the 9/11 attacks when they learned that losses due to terror strikes, largely unheard of before then on U.S. soil, were not covered.
The National Restaurant Association said Thursday that the unfolding crisis will result in lost sales nationally of $225 billion over the next three months. And whether explicit or in the fine print, the lost-income provisions of insurance policies are unlikely to cover the unfolding catastrophe swamping small restaurants like Trattoria Luna.
“Unfortunately that’s a microcosm of the insurance industry in general. Often times people think policies cover much more than they really do. This is no different here,” said Brian Pfeil, chair of the litigation team for the law firm Davis Kuelthau in Milwaukee.
Pfeil co-authored a piece for National Law Review that warned that many businesses are going to be unpleasantly surprised when they learn that lost revenue and income from government-imposed shutdowns of business are unlikely to be covered by insurance.
“The business loss as a result of Covid-19 is almost all economic. The economic or monetary loss is not the result of a direct physical loss,” Pfeil said.
Translated, it means income-loss provisions are meant to cover interruptions to business from busted pipes, fire, vandalism and the like. They aren’t designed to cover viral outbreaks or government mandates to shutter businesses.
“The general rule is that it won’t be covered and it’s because it has to be a direct loss. It has to be on the premises,” said Bill Beckham, chairman of the NEA Insurance Group in Miami and a veteran insurance agent.
Beckham did not recall a single instance in the past 20 years where a customer asked to be covered against a pandemic. He’s received nearly a dozen calls or emails from customers asking if their policy’s income-loss provisions covered the current situation, and he’s had to tell them no.
“Most are not surprised, but a few are definitely surprised,” Beckham said.
There are rare exceptions to the general rule that insurance doesn’t cover shutdowns ordered by the government due to circumstances beyond the property. He noted the deadly June 2016 shooting rampage at the Pulse nightclub in Orlando. Because police had to shut down the surrounding area for several days as part of their investigation, a court sided with businesses that their lost business income was due to a direct physical cause and must be covered.
For now, Mastagni battles to just keep the doors open. The 54-year-old restaurant owner began offering takeout service this week, and his staff of eight is being rotated so that all get a bit of income.
“The business is way down, obviously, but at least at the moment with the takeout it kind of helps psychologically. We say we want to keep going until further notice,” he said.
The bigger fear, he said, is a complete lockdown like that affecting his parents and siblings in Italy, where the number of deaths shot past 3,405 on Thursday to become the world leader in coronavirus deaths.
“I hear from Italy that this is lasting more than they are hoping and expecting. They all thought it was going to be a week or two, and it was extended,” Mastagni said. “I think we’re behind what Europe and Italy is seeing. Hopefully it is not going to get as bad.”
In Florida, the partial shutdown alone threatens the livelihoods of more than 1.5 million restaurant and lodging workers, about one million of them from Key West to Central Florida, said Carol Dover, the longtime president and CEO of the Florida Restaurant & Lodging Association.
“If you just do the math, we are probably getting ready to approach one million employees that are out of a job,” Dover said, not even getting into the effect on the farms, wholesalers, warehouses and delivery companies that supply the sector.
While the 9/11 terror attacks and the 2008-2009 Great Recession created tremendous upheaval and challenge to the sector, she said, neither approached the scale of the abrupt across-the-board halt of economic activity this time. It’s why Dover’s association is working the phones to support measures in the economic stimulus legislation being readied in Washington for grants to allow owners of small restaurants to pay employees for up to six weeks in hopes of avoiding massive layoffs and business closures.
“That would be the biggest help we could have because it is not a loan,” she said, noting that business owners would still struggle to pay rent and other bills. “This is more of a grant and they will not have to pay it back. … You’ve got to figure we’ve not had anything like this in any of our lifetimes.”
This sort of grant would be welcome to Mastagni, who feared that state-level support programs will involve loans that while free of interest would still have to be paid back.
“Because of the magnitude of the problem, we would hope that everybody gets some kind of help in this industry,” he said. “Everybody is in the same boat across Miami, South Florida and across the United States.”
One thing he is certain of: At the end of the month, there will be an automatic withdrawal to pay his monthly insurance premium.
“Are they giving me a break? We all have to do our part,” he said, noting that if he and others go out of business, insurance companies have fewer businesses to insure. “We have to be a bit more compassionate and understand that everybody is in the same boat.”
This story was originally published March 19, 2020 at 4:00 PM.
