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Mass. Coalition Urges Insurance Companies to Honor Business Interruption Claims

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It's been widely reported how the hospitality industry has been hit hard in this pandemic.

Many restaurants and hotel owners thought their business interruption insurance would help them survive the months they had to be closed, or operating at restricted capacity.

But that hasn't been the case; insurance companies have denied most, if not all, business interruption claims.

A new coalition wants to change that, in part with proposed bill on Beacon Hill.

CAI’s Kathryn Eident talked with Amanda Converse, CEO of Love, Live Local about this, and a recent opinion piece she wrote on the issue for The Boston Globe.

Eident Talk about how many restaurants closed down for good in Massachusetts last year in the pandemic.

Converse Yes, certainly throughout Massachusetts we've seen over 3,500 restaurants closed since the beginning of the pandemic, and that's permanently closed. That doesn't necessarily include the restaurants that haven't reopened or who have reopened at a very limited capacity.

Eident Do you have a sense of what the landscape looks like on the Cape?

Converse You know, I don't; it's so much harder on the Cape just because of the seasonality. I think we will start to see this spring what the impacts of the pandemic were on Cape Cod when we maybe don't see some restaurants open that we had expected to.

Eident And, you're part of a new advocacy group, and it's called THIRST. What does the acronym mean and what's the group's mission?

Converse THIRST stands for The Hospitality Industry Reimagined Security Trust. It's quite a mouthful. THIRT is a group that was started by people in the restaurant and hospitality industry in New York City, because obviously, as we've seen, the restaurants and bars there were incredibly hard hit and are going to see lasting impacts from the pandemic and the government shutdown and all of that.

So, they were founded when they themselves found that they were not able to file claims with their insurance companies for business interruption insurance. Many of them banded together and said, "This can't be right. We've paid for this coverage for years and tune of tens of thousands of dollars. And to not be able to get business interruption insurance when our businesses have quite literally been interrupted seem crazy."

And what's great about THIRST is that it was started by small businesses, but they were quickly joined by a legal team, insurance lawyers, who wanted to help because they saw this as really criminal.

So, they recognized that they had to go state by state because the insurance companies are regulated at a state level and so Love Live Local became acquainted with them in the fall, although we were aware of the issue right when this happened, because we were hearing it from Cape Cod businesses as well, that they were basically told not even to bother filing a claim with their insurance companies because they weren't going to get payout. And we joined the coalition and started working in Massachusetts to basically get some legislation on the table to address the issue.

Eident And I want to talk about that legislation in a minute, but I want to just kind of focus in on what kinds of insurance businesses, restaurants, hotels need. They have to buy varying types of coverage, let's say, when opening a restaurant, talk about what kinds of insurance they need to have. And you mentioned that it could be quite expensive.

Converse They have to have property insurance. They have to have liability insurance. They have to have workers compensation insurance, equipment breakdown insurance. They have to invest in business interruption insurance. Most restaurants, i's incredibly costly to run anyway, and when you tack on all of these insurance costs, which can be tens of thousands of dollars a year, they have to invest in it in order to get some licenses.

Eident And of course, you were talking about how THIRST, this coalition, is pushing to get insurance companies to, I guess, play better in the sandbox. What are the grounds that they have to just simply deny small businesses who say their business has been disrupted? Is it because of the sheer scale, the sheer number of businesses that would make these claims?

Converse No, I think that's what they would say, is that it's the sheer number would wipe out the insurance industry. That might be one of their arguments. But I think it's pretty par for the course for most insurance companies to try to deny claims whenever they can.

And, for many of the business interruption insurance policies after the SARS outbreak, they included a pandemic exclusion. So, it's quite literally in the contract that pandemics are not covered. But, there are a lot of policies that don't have this exclusion. And, but they're saying that they were only meant to cover interruptions for things like disasters, like fires and floods, not from pandemics, but in most policies, there is a civil authority action coverage. So, when the governor tells you you can't be open for various reasons, that should kick in and you should be able to file a claim.

Eident You also mentioned in your opinion piece for The Boston Globe that the insurance industry has quite a bit of a surplus. So, there is, in your mind, money to help fund these claims, should they be honored?

Converse Yes. So, the Insurance Information Institute estimates there's almost $800 billion in surplus with the with the insurance industry right now. And, that money is just collecting interest at the moment. And, the estimate from that same group has said that if they were to honor legitimate claims to this business interruption insurance coverage, it would only require half of that amount. So about $400 hundred billion.

Eident Has anyone, to your knowledge, been able to successfully file a claim for business interruption so far in the pandemic?

Converse We do not know of anyone who's been able to file a claim and get paid out. The only successful claims that we have heard of across the country were people who took insurance companies to court. But of course, most small businesses can't afford that.

Eident There is a bill now on Beacon Hill, it was just introduced. Can you talk about that?

Converse So, one of the goals is to get legislation introduced and passed at the state level that would require insurance companies to honor legitimate claims around business interruption insurance and to do away with virus exclusion clauses. And we're very grateful to State Senator Diana Dizoglio and State Representative Dylan Fernandez, who is, of course, one of our local lawmakers here on the Cape. They've recognized that this is an essential piece of legislation to introduce, to provide another lifeline that our small businesses so desperately need.

Eident And, that is Amanda Converse, CEO of Love Live Local. Amanda, thanks so much for talking with us.

Converse Thank you so much for having me.

This conversation was lightly edited for grammar and clarity.