Restaurants denied ‘act of God’ insurance for coronavirus, turn to Trump and Congress
Restaurants, among the most devastated industries in the coronavirus pandemic, were thrown a lifeline in the $2 trillion economic relief package signed into law by President Donald Trump on Friday. But industry advocates say it may not be enough to prevent many from going out of business.
The legislation known as the CARES Act grants restaurants access to billions of dollars in loans they don’t have to pay back if they retain their employees throughout the public health crisis.
Those loans could make the difference between survival and closure for restaurants across the country that have lost all inside dining traffic due to state and federal social distancing guidelines to slow the spread of COVID-19, the disease caused by the new coronavirus.
The Small Business Administration loans could also avert mass layoffs in an industry that employs nearly one in 10 working Americans.
Industry advocates, however, are already looking ahead to what other financial assistance restaurants might need from the federal government in the coming weeks and months.
They are now focused on seeking help to contend with insurance companies that are denying restaurants their insurance claims by refusing to characterize the pandemic as an “act of God” business interruption, as would apply to natural disasters such as hurricanes.
“If this is not an ‘act of God’ that stops a restaurant’s operation, I don’t know what is,” said Sean Kennedy, executive vice president at the National Restaurant Association. “It’s a very dire situation.”
Kennedy told McClatchy that the industry’s next big request of elected officials will be for help on business interruption insurance.
He called the CARES Act “a tremendous first step towards allowing restaurants to keep their lights on a little longer. But for the long term needs of this industry, we are going to need more out of Congress.”
The CARES Act will allow restaurants with fewer than 500 employees to tap a $349 billion pot of money housed within the Small Business Administration, which will forgive the loans if the restaurant keeps its employment count at pre-crisis levels for the duration of the pandemic.
A senior Senate Republican aide involved in the negotiations said the Treasury Department will eventually have to issue guidance for other restaurants about the terms of the loans and timetable for paying them back.
An original legislative proposal on Capitol Hill would have locked out some restaurant owners who have more than 500 employees spread out over multiple locations — for instance, an individual who owns and operates a line of franchised restaurants.
Restaurant industry lobbyists, however, worked with lawmakers to negotiate a waiver for those individuals, stipulating that owners with more than one restaurant location may receive loans as long as each physical location does not employ more than 500 employees.
Restaurant owners “will now be able to keep people on the payroll for a period of months, even if the restaurant or the business is not open,” Vice President Mike Pence, who leads the White House coronavirus task force, told reporters at a press briefing on Thursday.
The pace of the crisis — which has already forced 3% of restaurants nationwide to close their doors — is now putting pressure on the Small Business Administration to process thousands of industry applications quickly. Kennedy told McClatchy an additional 11% of restaurants are expected to close permanently in the next 30 days.
The escalating urgency is prompting executives in the restaurant industry to engage with congressional leadership and the Trump administration for help with companies denying business interruption insurance.
Individual restaurant executives could choose to take legal action against the insurance companies, forcing them into a protracted fight that would likely extend far beyond the crisis.
But industry advocates would prefer White House intervention or, short of that, congressional legislation.
“I know that the White House has heard about this issue from a number of restaurant owners and the National Restaurant Association,” Kennedy said.
White House officials are aware of the request and are looking into a fund that could offset the denied insurance claims. Senators involved in drafting the small business provisions of the CARES Act have discussed the issue as well, the senior Senate Republican aide said..
During CARES Act negotiations, the restaurant association had explicitly requested $100 billion to create a federal fund to provide business interruption insurance for restaurants. That request could come up again during negotiations on any subsequent congressional economic relief package.
Trump on Thursday said that restaurants are a “very delicate business,” citing his own experience with hotel ownership.
“I’ve heard 3 percent could be lost and you could go as high as 10 or 11 percent, but they’ll all come back in one form or another,” Trump said. “What we’re doing in terms of loans, what we’re doing in terms of salaries — they’ll all come back.”
He did not, however, address the most pressing concern to some restaurant owners — how to maintain their current businesses and employees.
“It may not be the same restaurant, it may not be the same ownership, but they’ll all be back,” Trump said.
Updates that President Trump has signed the CARES Act into law.
This story was originally published March 27, 2020 at 2:24 PM.
