Restaurant owners contend their business interruption insurance should cover pandemic-related losses because the state government ordered them to close.
When a tornado hit Cape Cod last summer, Jeffrey Mitchell and his business partners had no problem collecting on an insurance claim for damage to their restaurant, The Talkative Pig, in Chatham.
The restaurant lost power for three days, the sign fell and a fence was destroyed. In less than a week they filed a claim with their insurance company — which quickly sent a representative to assess the damage — and the restaurant owners received insurance money to help pay for repairs.
But when COVID-19 struck, Mitchell and his partners were forced to close The Talkative Pig, leading to lost business and revenues. They had to submit a 17-point document answering many questions to their insurance company. After two months, the restaurant owners are still waiting to hear from them.
In general, insurance companies haven’t covered business losses due to pandemics since the 2003 SARS outbreak. But restaurant owners contend their business interruption insurance should cover pandemic-related losses because the state government ordered them to close.
Many restaurants have struggled to get their insurance company to pay any claims, and for restaurants on the Cape that already are preparing for the winter ahead, receiving insurance claims could make the difference between getting by and going out of business.
A citizen advocacy group called THIRST, which stands for The Hospitality Industry Re-Imagined Security Trust, is working with lawmakers at federal, state and local levels to help restaurant owners, who are negatively affected by the pandemic, collect money from their insurance companies.
The group’s goal is to pass a law that forces insurance companies to provide business interruption coverage for restaurants and other hospitality businesses the state orders to close, said Mitchell, who is the Cape Cod representative for the group. He says the pandemic clause is short-sighted.
“It didn’t take into account that when you have a global pandemic like this, and such a widespread one, that restaurants are going to have to close,” Mitchell said.
Another clause in almost every insurance policy is called the civil disruption clause, which restaurants can use when a local or national government tells them they cannot be open, Mitchell said.
THIRST argues that the pandemic clause is outdated and that there has been civil disruption because Massachusetts officials ordered restaurants to close indoor dining.
Mitchell said that insurance companies are holding about $800 billion in reserves, and THIRST estimates it would cost between $3 billion to $4 billion to pay out COVID-19 related claims to restaurants.
“What we’ve seen, it seems like they’d be able to help us out,” Mitchell said.
A bill in the Massachusetts State Senate would require certain insurance companies in the commonwealth to provide business interruption insurance coverage to their policies in relation to the COVID-19 pandemic. If passed, Bill S2655would require them to cover claims for loss of use and occupancy, and business interruption due to COVID-19 even if there was no physical damage to the property.
The bill passed in the House on April 23 but has been stuck in the Senate since April.
THIRST is working to create a petition for hospitality business owners to sign, which the group plans to present to legislators to get the bill back in the forefront of lawmakers’ minds, Mitchell said.
Steve Clark, vice president of the Massachusetts Restaurant Association, said the association testified in support of the bill when it was filed but he thinks ultimately the issue will have to be decided in the courts, most likely at the federal level.
“There’s been a number of lawsuits filed from operators that have had their business interruption insurance claims denied or were discouraged from filing claims in the first place,” he said.
He estimates that out of 16,000 locations in Massachusetts, about 20% have closed or have not reopened. He thinks that number will increase throughout the winter.
“Hopefully in the winter the consumer will be more comfortable dining out,” Clark said, “and I think that they find that once they go out one time, they see that regulations are being followed and that it is OK.”
For the Cape, Clark said, many people who have second homes on the Cape are staying longer, giving extra business to restaurants. There also was a bump in business at the beginning of summer but many people already have left.
Every restaurant took a bit of a loss this year, Mitchell said, and he is worried that as they go through the winter and do not see business pick up in the summer, there will be another wave of seasonal businesses closing. That includes the clam shacks and ice cream shops that give Cape Cod its character, he said.
Cape residents and visitors already had to say goodbye to local favorites such as the Lobster Claw in Orleans, the Seaside Pub in Hyannis and The Bean on Nantucket.
If restaurants on the Cape do not get help and cannot afford to stay open then what makes Cape Cod unique is at risk, Mitchell said.
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“That’s the thing that we really risk here,” he said, “is becoming just another place with corporate restaurants because those are the only people that can afford to pay for the food and everything.”
Love Live Local, a small business advocacy organization on the Cape, is supporting THIRST’s initiatives, believing that if the insurance legislation passes it could save the restaurant industry, Amanda Converse, co-founder and CEO, said.
“If there was ever a time for these claims to be honored by the insurance industry, it is during a global pandemic when our small businesses are being destroyed,” she said.
With an economic slowdown and limited seating capacity, many restaurants are not going to have the cash reserves they need to get through the winter, Converse said.
“The ripple effects of restaurants closing on the Cape, that’s lost jobs, that’s lost tax money, that’s lost wealth for the community because as we’ve shown … local restaurants reinvest 50% of their income back into the community, “she said. “If you think about the ripple effects of that, it could be really bad for our community for the long term.”
Follow Jessica Hill on Twitter: @jess_hillyeah.