With my history of decades in the food service industry, and my occupation as an insurance agent, this is a concerning read (link below). Obviously, as a Zagat article, there is much here that demonstrates a lack of understanding of insurance. One point that is fair from the business owners perspective is they buy a possibly poorly-worded “general” coverage called “Business Income” coverage (aka Business Interruption), and without reading policy documents and definitions, it is easy to misunderstand what this coverage is. The same is true for many insurance coverages that have abbreviated, commonly referenced With my history of decades in the food service industry, and my occupation as an insurance agent, this is a concerning read. Obviously, as a Zagat article, there is much here that demonstrates a lack of understanding of insurance. Similarly, I understand that a business owner buys “what they believe to be a generalized” coverage called “Business Income” coverage (aka Business Interruption), and without reading policy documents and definitions, it is easy to misunderstand what this coverage is. The same is true for many insurance coverages that have commonly used abbreviated names or titles: Damage to Premises is another important one that doesn’t actually mean what it generally sounds like, as is Personal Injury, Voluntary Property Damage, Additional Insured, Employers Liability, Non-Owned Auto, Inland Marine, and so on… These are short names for a specific type of coverage that has to be read, understood, or discussed with your agent if you want to know what it REALLY means. So, the miscommunication problem is that policyholders feel like “business income” covers any loss of income, when that is not what it means – that is just an abbreviated term/title for a much more specific type of coverage.
Unfortunately, we all realize that the small, private restaurateur is in an existential crisis. I wish that were not true and that there were an easier solution to help restaurateurs. The food service business model currently has to be radically redefined if there is any hope of surviving, and whether there actually is a long term sustainable model is a big, scary unknown. The primary general purpose of insurance is to be there as a failsafe – to help “make you whole” when there is a circumstance beyond your control that is potentially financially devastating. Clearly, Covid-19 fits exactly into that “primary intent,” however over time as insurance has evolved, there is also a strong case to be made as to why current Business Income claims are being denied. This is disappointing to hear as a business owner because you’d like to believe that “you are buying insurance to protect you against (all) unknowns.” Add to this the overwhelming frustrating legalese of insurance policy forms, and there is plenty of frustration to go around.
A couple of points I’d like to make from my personal perspective:
“A fundamental principle of insurance law is that if something is not specifically excluded, it’s included.” – This is a tricky one. I wouldn’t agree, but would rather clarify two aspects of when this might apply, neither of which apply to Business Income coverage. First, on a Personal Lines Homeowners policy, there is a policy form type called an HO-5, or an “all risk” policy that provides “Special Coverage on Personal Property.” This does indeed mean that for the contents (ONLY! Does not apply to the building!) of your home that you own, every cause of loss is covered unless it is specifically excluded. This endorsement can also be added to many types of regular HO-3 policies. In actual practice, a very, very small percentage of homeowners policies have either this coverage form or this endorsement – up front people don’t want to pay extra for this. However, the Zagat article is not about personal insurance in any way, it is about commercial insurance. Commercial insurance is written on very different forms. The coverage that best approximates the statement is General Liability, a fundamental principle of which is that, “as long as you accurately state (and underwriting approves you for) your intended operations at the inception (and every renewal) of the policy, then any new operations you may begin during the policy term are covered.” Keep in mind that “covered” for General Liability means that if your work causes bodily injury or property damage to others due to your negligence (through action or inaction), then the coverage comes into play (unless excluded). As regards commercial insurance, a more appropriate phrase might be “Insurance doesn’t cover every possible thing, it only covers what it says it covers.”
“The government should get involved because they mandated the closure.” This would seem really what is needed here – the protection of the populace is the purpose for government health directives, so some type of assistance for those business hit hardest would seem to be in order. I’ll use this to clarify what the “Business Income” coverage on a commercial insurance policy is – as that is a source of most of the misunderstanding as to why many claims are being denied. Forget about the communicable disease exclusion for a minute – that is another article. Consider from an insurer standpoint that they are not going to be able to cover business income for ANY reason – they simply cannot take on unlimited risk, insurers are not themselves intentionally meaning to go out of business. To help clarify what this coverage is and how it evolved, they added it as an ENDORSEMENT onto an existing LINE of coverage. That line of coverage is Commercial Property. So, Business Income is an enhancement of property coverage. Because it is a property coverage, it requires a property “Covered Cause of Loss” in order to trigger. While the Special Causes of Loss form for business property is broad, keep in mind that it still requires some type of property loss (aka damage) in order to trigger. Thus, the intent, and the wording of this coverage that has the name “business income” should really be understood as “Business income in the event of a property loss.” In other words, it’s like towing coverage after an auto accident. You may not have towing covered for ANY cause of loss on an auto policy, but if your auto is in a covered accident (somebody hits you, you run into a tree), then towing of your vehicle after that accident is covered. The intent (and the wording of policy documents will show this) of the coverage with the abbreviated/common name of “business income” is that when the contractor next door runs a bulldozer through your water supply lines, or a customer drives their vehicle through the wall of your restaurant, THEN the loss of business income as a result of that “triggering” property loss is meant to be covered.
Regardless of the outcome of this situation, the lesson here is to ask questions and to take an interest in understanding what your policy is and what it is not. Don’t think that you’re purchasing a blanket of protection, when what you’re actually getting is coverage for common yet defined scenarios.
The above is in response to the following article: https://stories.zagat.com/posts/restaurants-banding-together-to-chase-insurance-companies-for-denied-pandemic-claims