Should insurance cover business losses during a pandemic?

A once-bustling bar and grill tucked below a Michigan Avenue overpass famously inspired a "Saturday Night Live" skit starring John Belushi and Bill Murray. But the money the Billy Goat Tavern is losing during the coronavirus outbreak is no joke.

The tavern and millions of other shuttered businesses nationwide have turned to their insurers to help recoup their losses following state-mandate closures, which combined may exceed $300 billion a month. But insurers have widely rejected the claims, so the Billy Goat joined a growing line of businesses, including barbershops and casinos, suing insurers to force them to pay.

"These businesses are in the most trying times in their history and are going to their insurance company to get what they paid for," said Chris Esbrook, a lawyer for the landmark tavern, which opened in 1934 and, as legend goes, cursed the Chicago Cubs.

Insurers say policies for natural or man-made disasters don't cover virus outbreaks that bring economies to a standstill, and high-stakes battles in courtrooms coast to coast are sure to follow. What's at stake could be the survival of thousands of businesses if insurers don't pay and the insolvency of big-name insurance companies if they do.

"Pandemic outbreaks are uninsured because they are uninsurable," David A. Sampson, president of the American Property Casualty Insurance Association, said this month.

No revenue is flowing into the Billy Goat, which previously drew hundreds of tourists a day, including some who remember the best-known line from a series of late 1970s SNL skits in which restaurant staff rebuffs patrons ordering anything but the house specialties: "Cheezborger, cheezborger, cheezborger! No Coke ... Pepsi!"

As many as 30 million small businesses straining to survive with little to no revenue could submit virus-related claims worth up to $430 billion, the insurance association estimated. Those unprecedented numbers would be multiple times higher than claims following the Sept. 11 attacks.

The expectation is that insurers will continue to reject the vast majority of claims, triggering waves of lawsuits from businesses in nearly every town and city. Such a filing frenzy could add to holdups in courts when they reopen fully after the pandemic eases.

Among dozens of lawsuits filed to date is one by the Choctaw Nation casinos in Oklahoma and another by the Los Angeles law firm of celebrity attorney Mark Geragos.

"You pay insurance for decades for precisely the unthinkable, and when it happens these insurance companies do the unconscionable" by rejecting claims, Mr. Geragos told The Hollywood Reporter.

Forcing insurers to pay hundreds of billions of dollars a month could quickly deplete the $800 billion set aside to cover future home, auto, and other losses, according to the insurance association.

The attorney for the Billy Goat, which expanded from its flagship site to include establishments around Chicago, says he has little sympathy for insurers.

"They are in the business of selling people insurance for exactly this kind of situation," Mr. Esbrook said. "They can't now cry they're poor when the very situation they are insuring arises."

President Donald Trump recently expressed sympathy for businesses asking insurers to pay up for business interruption coverage.

"When they finally need it, the insurance company says, 'We're not going to give it,'" he said at a coronavirus task force news conference. "We can't let that happen."

Similar conflicts are playing out in Europe and Asia, though they aren't likely to see the torrent of lawsuits sure to come in the litigious United States.

The question on which many cases will hinge is whether the presence of the virus in or near a business can be categorized as direct physical damage, something that would otherwise be clearly covered. It's a question courts haven't definitively answered.

Proving a microscopic virus was ever even on a business's premises, never mind damaged it, could pose a challenge to plaintiff attorneys.

The Pennsylvania Supreme Court last week may have inadvertently helped business owners make their case when it upheld a state order closing nonessential businesses during the pandemic, likening the coronavirus to hurricanes in its ruling.

"COVID-19 pandemic is, by all definitions, a natural disaster and a catastrophe of massive proportions," the majority opinion said.

Insurance companies say most policies that cover unanticipated interruptions to a business's operations specifically exclude pandemics. Such exclusions became more common after a SARS virus outbreak in the early 2000s devastated businesses in parts of Asia.

A message seeking comment from the insurer the Billy Goat is suing, Society Insurance, wasn't returned.

A note to policyholders on the website of Travelers Indemnity, the insurer Mr. Geragos is suing, reads like a blanket denial of virus shutdown claims because they're "not a result of direct physical loss or damage." It also cites virus exclusions in its policies.

But such exclusions don't mean businesses don't have valid claims, the business lawyers contend. They point to separate policy provisions requiring that insurers pay losses when civil authorities intervene during emergencies and order businesses to close.

The Billy Goat Tavern's legal team says their case may be that much stronger because their insurer did not write in a virus exclusion and then still denied coverage.

Pressure on insurers isn't only coming in the form of lawsuits.

State lawmakers, including in Illinois, New York, and New Jersey, have proposed laws that would dictate insurers accept business claims for coronavirus damage, in some cases even if policies exclude pandemics.

Industry advocates say such mandates could drain insurance funds needed to pay claims during upcoming hurricane season and when other natural disasters inevitably strike. The laws, they argue, also would undermine the contract law upon which free markets rely.

"If elected officials require payment for perils that were excluded, never underwritten for, and for which no premium was ever collected, catastrophic results will occur," said Charles Chamness, president of the National Association of Mutual Insurance Companies.

This story was reported by The Associated Press.

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