Sonoma County businesses with pandemic-related losses hit wall with commercial insurers
In the aftermath of the power shut-offs during the October 2019 wildfire, Berlin Fisher realized he needed to get business interruption insurance coverage for his West County Style Bar in Guerneville because another disaster could put his hair salon on precarious financial footing.
Fisher had to wait until 30 days after the Kincade fire, then bought a policy from Hiscox Business Insurance in November to provide him some protection for what would be the next in a series of natural disasters to ravage the region in recent years. Before Kincade's flames, the lower Russian River area where he operates his salon was swamped by historic floodwaters last February.
When the Sonoma County health officer ordered the closure of businesses deemed not essential effective March 18 to help curtail spread of the coronavirus, Fisher initially was relieved figuring his business interruption insurance would kick in to make up for his loss of business. But Hiscox denied his claim, saying the salon's interruption “has not been caused as a result of direct physical loss or damaged property at the premises,” according to an email from the insurer.
The rejection left Fisher baffled, perplexed and angry.
“There is actual physical damage to my business and equipment,” he said in an interview. “The virus can sit on my equipment. It can sit on metal for three days. My scissors are metal, so that's damaging my equipment.”
Fisher's frustration mirrors that of many other small business owners across the North Bay who have found themselves in the same quandary: business interruption coverage apparently excludes paying for losses during the COVID-19 pandemic. They are small shops, breweries, entertainment establishments that have faced the same refusal from commercial insurers to pay their business interruption claims. Their plight has attracted the attention of California lawmakers, the state insurance commissioner and lawyers.
Robert Hartwig, a business professor at the University of South Carolina and former president of the Insurance Information Institute in New York, the industry's main research group, said the coverage exclusion for a virus or bacterium started appearing in commercial insurance policies beginning in 2006, in the aftermath of the SARS (severe acute respiratory syndrome) outbreak from 2002 to 2004.
Some area small businesses are fighting back, though. Most notably, famed chef Thomas Keller of Yountville's French Laundry restaurant. Keller last month sued his insurer, Hartford Fire Insurance Co., in an attempt to have the insurance company pay for his losses caused by the interruption of French Laundry and his other restaurants. He has been forced to furlough 300 employees.
Keller's attorney, John Houghtaling, noted how the coronavirus has particularly threatened the nation's restaurant industry, which employs 15.6 million people. “This entire sector is crippled by a nationwide public health shutdown impacting countless livelihoods. We need insurance companies to do the right thing and save millions of jobs,” Houghtaling said in a statement.
Insurance coverage woes
The latest anguish over insurance coverage during a crisis is all too familiar for many Sonoma County residents. Many of them who lost homes during the 2017 North Bay wildfires, have found their properties were underinsured and, therefore, have battled with insurers in some cases in order to rebuild their homes.
“They (2017 fire victims) had a full coverage problem,” said Amy Bach of United Policyholders, executive director of United Policyholders, a San Francisco- based consumer advocacy group. “What they didn't have is a base coverage problem that we have here.”
Only a third of U.S. small business owners are estimated to have business interruption coverage, according to a survey by Nationwide Insurance. However, there is likely a fair number of them in the North Bay because they bought the coverage after being harmed or wiped out by recent fires or other calamities. Bach said she is working with lawyers to inform small business operators about the issue and recently held a webinar with about 25 vintners with the Napa Valley Vintners trade group to explain the intricacies of business interruption insurance.
The decision by a business owner to pursue legal action against a commercial insurer over this matter likely comes down to whether a business interruption policy includes a specific exclusion for virus- related losses. Typically, these commercial polices will have standard language stating that the suspension of business operations must be caused by direct physical loss of or damage to property - which is what insurers are saying isn't present with the coronavirus pandemic. Attorneys tend to be reluctant to take a case for a business if the interruption policy has such a virus exclusion, Bach said.