Washington Post, April 22 Hard-hit restaurants, gyms and other businesses are battling insurers over the coronavirus, sparking a new Washington lobbying war Hundreds of billions of dollars are at stake, and some groups have asked Trump to intervene. A multibillion-dollar standoff between the nation’s leading insurers and the restaurants, hotels, gyms and theaters that purchase their policies has spilled into some of the most powerful corridors of Washington, as both sides clash over who should foot the sky-high costs of the coronavirus outbreak. The battle hinges on whether insurance providers should have to pay claims to companies that have shuttered unexpectedly as a result of the deadly pandemic. The dispute has attracted the attention of President Trump, triggered lawsuits in courtrooms nationwide and touched off a massive lobbying blitz on Capitol Hill, where some insurers say the federal government instead should be the one providing financial help to those that need it most. The industry’s powerful lobbyists, led by the American Property Casualty Insurance Association (APCIA), say “business interruption” policies never were intended to cover contagions. Even if they had been, the estimated claims just from small businesses during the coronavirus pandemic could total more than $430 billion a month, threatening to create a “solvency event” for the industry, said David A. Sampson, the group’s chief executive. But business executives who have paid their premiums for years say they have been misled — and now face dire financial straits without the aid they believe they were promised. Some have sought federal aid in response: Prominent restaurateurs including Wolfgang Puck, for example, have raised the issue directly with Trump in recent days. The problem has taken on even greater urgency because of growing confusion about who qualifies for federal coronavirus aid, given changing government guidelines — and fast-dwindling funds. Even some of the more obscure Washington political players have bulked up for a fight: The International Health, Racquet & Sportsclub Association, which represents 40,000 fitness clubs nationwide, said it took the rare step this month of hiring a slew of new lobbyists, including two new firms, partly to nudge Congress to provide help on the insurance issue. “They’re setting themselves up to not pay it,” said Greg Wells, the chief executive of Atlantic Coast Athletic Clubs and one of the group’s members. The fitness chain closed its facilities to about 70,000 gym-goers in early March. Wells soon after filed a claim with his insurer, only to receive a notice that pandemic-related interruptions won’t be covered. “That’s what you have this type of insurance for,” he said. “If your business gets shut down, you can continue to employ people.” Typically, business interruption insuranceplans are supposed to protect companies from major financial losses if they are forced to close or suspend their operations. The insurance can help smaller employers that are damaged and disrupted because of a local disaster, including a fire that causes direct physical losses. Yet major insurers began to rethink their policies about two decades ago, facing the threat of another public health crisis: the SARS outbreak that emerged in 2002. Spooked by the prospect that they might have to pay out incalculable sums in the event of a massively fatal contagion, some insurance providers inserted exclusions in their commercial contracts, prohibiting businesses from filing claims for disruptions caused by viruses or bacteria. Nearly 20 years later, industry executives flatly say that business interruption insurance does not cover claims related to the still-unfolding covid-19 crisis. The exclusions have come as a shock to the scores of companies whose claims have been denied in recent weeks. Some employers and their lawyers contend that their policies never excluded outbreaks outright — yet they’ve been denied much-needed payments anyway. Last month, the National Association of Insurance Commissioners appeared to take the side of industry. “Business interruption policies were generally not designed or priced to provide coverage against communicable diseases, such as COVID-19 and therefore include exclusions for that risk,” they said in a statement. But J. Robert Hunter, a former insurance commissioner from Texas, took a different view, saying that some policies do not specifically exclude coverage in case of a virus or pandemic. “The courts will have to decide,” added Hunter, who now directs insurance policy at the Consumer Federation of America, predicting mixed results for both sides in the ongoing battle. The rising frustrations — and mounting financial losses — have led some restaurants, gyms and other businesses in recent weeks to redouble their efforts in Washington. They hope to persuade lawmakers to adopt sweeping changes to federal law, either by forcing insurers to pay or authorizing the Treasury Department to step in. “If people have paid for coverage, and their expectation is legitimate, they should be taken care of,” said Steve Sleeper, the executive director of the Professional Beauty Association. His group, representing hair stylists and salons, is one of many now scrambling to figure out their next steps. Insurers have faced their most vocal opposition from top chefs and restaurateurs, who began a legal and lobbying campaign with the aid of John Houghtaling, a New Orleans-based lawyer. Their coalition, dubbed the Business Interruption Group, has been led by celebrity chefs including Wolfgang Puck, Thomas Keller of Napa Valley’s French Laundry restaurant, and Jean-Georges Vongerichten, who owns a restaurant bearing his name at Trump Tower in Manhattan. They have snared the support of hotels, casinos, well-known nonprofit organizations and Trump himself. “The insurance industry is pumping out false information,” Houghtaling said, adding that officials “lied to their brokers, they lied to their agents and now they’re lying to customers" about their legal obligations to pay claims. Sampson, the leader of APCIA, stressed that such policies for years have excluded coverage for such health crises. “Exploiting this crisis with litigation profiteering will stop America’s recovery before it even starts,” he said. On March 29, the top chefs made their case to the president by phone, stressing that insurers needed to pay up, according to a person familiar with the call who spoke on the condition of anonymity to discuss a private conversation. During the call, and in a subsequent memo to Trump and top White House aides, the restaurateurs urged the president to recognize the validity of their insurance claims — and they proposed he ask Attorney General William P. Barr to issue an advisory opinion finding that the virus created dangerous work conditions leading to closures, the person said. Days later, Trump stunned insurance executives by saying at the daily White House coronavirus briefing that he thought insurers should pay business interruption insurance claims if the policies did not include a pandemic exclusion, noting that insurance customers had paid their premiums for years. “When they finally need it, the insurance companies say we are not going to give it,” Trump said. “We cannot let that happen.” A White House official confirmed the call, adding that the National Economic Council is studying the matter. “As President Trump has said, we are ensuring that we take care of all Americans, including affected industries and small businesses, and that we emerge from this challenge stronger and with a prosperous and growing economy," the official said. Insurers viewed Trump’s comments as friendly to them. APCIA thought that the president “did not call for retroactive coverage for business interruption insurance," it said in a statement at the time. In the process, the industry has begun a lobbying blitz: With dozens of trade group allies, it has called for a government assistance program to deliver aid directly to businesses, including through a federal fund modeled in some ways on the aid that was provided after the attacks of Sept. 11, 2001. The industry’s five major trade associations spent about $3 million in the first three months of 2020 to push such policies and other issues in Congress, according to federal ethics reports filed Monday. The insurers’ preferred proposal competes with several other efforts emerging on Capitol Hill, including an early push by Rep. BrianFitzpatrick (R-Pa.) to force insurers to pay businesses disrupted by the coronavirus. Another, by Rep. Mike Thompson (D-Calif.), would ensure that future business interruption coverage includes pandemics — an idea that APCIA and its allies said in an April letter would “end the very existence of the business interruption insurance market as we know it." In response, Thompson sharply criticized the industry, attributing its recent recalcitrance to a long history of denials, including during the California wildfires last year. “Those guys have made a lot of money avoiding their responsibility,” he said, “so I’m assuming they don’t want to all of a sudden turn around and say, ‘We should have been doing this right.’ " The insurance industry appears to have gained traction with some Republicans. Sens. Steve Daines (Mont.) and John Cornyn (Tex.) are drafting a plan to have the federal government essentially pay a form of business interruption insurance to firms affected by future pandemics, said two people familiar with their effort who spoke on the condition of to discuss plans that had not been made public. They aim to include the proposal in the congressional stimulus package expected to be taken up next month. The GOP senators’ effort is in its preliminary stages, but their ideas are modeled after a proposal by the Texas Public Policy Foundation, a right-leaning think tank, these people said. Their approach may encourage investment and growth among businesses trying to recover from an unprecedented economic calamity, but it could prove both expensive and politically explosive, even within the Republican caucus, which may view it as an insurance bailout. The insurers and a host of conservative groups also are wary of the role of trial lawyers, who have brought some of the initial litigation. A coalition of conservative groups, including Americans for Tax Reform, wrote congressional leaders urging them not to embrace “proposals to create shields from trial lawyers’ frivolous, costly, and job-killing litigation schemes.” Amid the Washington bickering, some companies caught in the middle of a well-moneyed political battle have turned to the courts for help in obtaining insurance payments they think they’re duly owed. In Texas, for example, a chain of local theaters including Star Cinema has filed suit against their insurer, Lloyd’s of London. The chain purchased “pandemic event” insurance, but Lloyd’s has refused to pay, saying that it is not obligated to cover losses connected specifically to the covid-19 crisis. A Lloyd’s spokesman declined to comment because of the ongoing litigation. The coronavirus also has proved particularly painful for the Indiana Repertory Theatre, a 48-year-old company that turned off its lights in March. The state’s stay-at-home order brought a run of “Murder on the Orient Express” to an abrupt halt and required the company to cancel the rest of its season, contributing to a $1 million shortfall in its budget expected come May, said Suzanne Sweeney, its managing director. “We immediately assumed our business is being interrupted, we should be able to file a claim,” she added. But agents at Cincinnati Casualty Co. said the theater doesn’t qualify, according to Sweeney, citing the fact that the structure itself hadn’t been damaged. In response, she enlisted the aid of lawyers who sit on the theater’s board. They sued the Cincinnati Casualty Co. and its insurance agent earlier this month, essentially arguing that the organization had been duped. Nowhere in its policy does it say the theater had to be directly damaged to file a claim for a business interruption, lawyers for the theater contend. And they alleged that the insurers in the process had engaged in a “negligent failure to advise” the theater about other policies that would have “provided additional coverage related to the novel coronavirus.” (The insurance company declined to comment on pending litigation.) Such lawsuits could take months to resolve at a time when Sweeney says the Indianapolis-based theater is in desperate need of aid and uncertain about its future. George Plews, the theater’s attorney at the firm Plews Shadley Racher & Braun, said it could not afford to wait. "We’re not hanging back waiting for legislative solutions,” he said, “that may or may not appear on the horizon.”
Let's translate this into traderspeak: "I've sold a dozen high risk/high reward puts. I didn't buy any units because who would've thought of a virus occuring. Please government bail me out from my current predicament because I don't understand risk despite running an insurance company!" This must be a joke. These insurance companies have to pay out their policies. Period. This is their industry. You make money until suddenly you don't.
I own seven franchise salon studios in the Midwest and my partner is a principal at one of the top 25 insurance brokers in the US. Of course we filed a claim with the carrier fully expecting it to be denied as it rightfully was based on specific exclusions that are well spelled out covering biological events. Every carrier would be bankrupt overnight and premiums would be unaffordable going forward if carriers were forced to cover this. Our franchisor and the IFA is lobbying for a government backstop as is everyone else. That would cost in the trillions and anyone who thinks the carriers can absorb this or that they are covered without buying specific coverage is delusional and wasting their breath.
It's actually in most cases the other way around, which the article did address but not well. My business interruption insurance clearly excludes pandemics, and the article implies this is the case for most of these policies. Despite that, businesses are trying to get reimbursed for something that clearly was excluded. That's like buying a put on Google and insisting you get paid when Yahoo's share price goes down. The fear here is that they'll circumvent the legal process and get a law passed in the heat of the current environment where the big bad insurance companies are liable regardless of what the contract says. I don't doubt there are a few sloppy firms that didn't write this in their policies and they'll lose the legal battles and go bankrupt. That's fine. Bankrupting all insurance companies that offer this makes that insurance, which is a requirement for many contracts my company holds, prohibitively expensive or simply no longer available. That's massively disruptive to the economy, and I would hope that no-one with an ounce of intelligence falls for the populist "make the insurance companies" pay screed since in the end it will be all the surviving and future small businesses that actually pay.
A little off topic here, but you always have some good insights into what's really going on from the standpoint of a successful entrepreneur. We have various threads here at ET that are rife with people talking out their ass about this and that and what things are going to look like going forward. Most have no clue. I'd be interested to hear your opinion Sig as to how you foresee things playing out economically based on what we currently know, including the state and federal aid being thrown at everything. What do you think the business landscape is going to look like going forward? I realize at the present there is still very much unknown about the Covid-19 pandemic.... but just based on what we know... what do you see?
Thanks for the compliment. Probably surprising but I'm going to say that I'm in a bubble such that I'm not sure I have a really valid opinion with respect to the rest of the entrepreneurs out there on this. I'm in the electricity generation industry, most of my clients are utilities, and so we're very insulated from any impacts. I realized how insulated I was during the PPP loan debacle when I was quite surprised by the very real desperation I heard among the people I know who were trying unsuccessfully to navigate through that process. People who I thought in many cases were much more stable and far better off than me before this crisis. That kind of led me to believe there's too much I don't know on this outside of some very narrow areas like the impact on insurance we're discussing here. I'll also admit that I was pretty angry about all the publicly traded companies who certified that the PPP loans were the only way they could raise capital. I had I rather naively hoped that those of us who didn't need them would all let them go to those who really did.
Ok, business aside... intuitively.... what do you foresee playing out societal-wise. Just your opinion. A commentary looking ahead on any aspect(s), of which there are many to choose from. Pour a stiff cup of coffee and think out loud for a minute.
OK, just to be clear you goaded me into this Well I'll start with my current financial plan since I think that says a lot. I have all my long-term investing money in either treasuries maturing in the next year or a small amount in SPX puts with 2000ish strikes and Oct-Dec maturities that I add to every day like today when there's a rally. Although I also trade SPX so there's a little mixing there as well. I think there are a few things that almost no-one would disagree with if the stopped and thought about them. For example, I think it's hard to imagine anyone willing to buy a house at 2019 prices. We all remember how that movie ends. There are also a bunch of things that almost all economists agree on. The general positive feedback loop of economies, either in the up or down direction, is pretty universally acknowledged. It's hard to see how mass inability or refusal to pay rents, mortgages, credit card bills, car payments, and other obligations doesn't have a massive feedback loop into a spiraling economy and we're already starting to see that. It's also clear that especially with big assets and bigger companies there is 6-12 months of inertia, meaning that the impacts of all this on something like house prices won't be obvious now or even 3 months from now but I think volumes will certainly reflect the coming fall in prices. The perhaps less clear piece is consumer spending. We know unemployment is through the roof, but a lot of those folks at least temporarily still have money to spend. Generally the feedback loop is pretty quick with layoffs -> less money to spend -> small businesses especially discretionary goods/services small businesses going out of business. That's going to be delayed I think because of PPP/cash payments/higher unemployment insurance payments. I don't see that we'll keep boosting those programs forever, we might have one more round left then maybe 2 infrastructure spending rounds. The big unknown in my mind is will the delay in that feedback loop from those programs be long enough that we can short circuit the whole mass going out of business part? Keynesian economics has never been tried before at this scale (ironic isn't it?) and while I agree with the basic tenets of it we don't have enough experience actually trying it to see if this particular aspect will work or how well it will work. The last piece is almost impossible to predict and that's general sentiment. If people believe hard enough we'll have a V recovery then it will go some ways to making that happen because it will impact their spending in all of the above. Everyone seems to just be shell shocked at the moment and unable to think beyond the lifting of restrictions. I think the real determinant will be if people in August are optimistic or demoralized, if the demoralized piece sets in then we're probably in for a long haul. Of course all opinions and now that they're out on paper you can all come back this time next year and remind me of how I did! I'll note that I was both worried about inflation and put financial bets on inflation happening during the first QE, so I obviously don't have a crystal ball. I also went to cash in March of 2008, so that helped ease the pain a bit.
I hear this a lot and there's no evidence it's true. Mortgages aren't being repackaged in the same way and (for now) there are regulations in place to prevent another disaster. Look at the facts: 1. Prior to covid there was record unemployment 2. Interest rates are rock bottom 3. In most regions housing is still affordable - $100,000 (a good starter home value) in 1989 is around $213,000 today. If you discount backwards CPI the only regions with "collapsible" housing are NY, California, Colorado, Oregon, etc. What do these all have in common? Heavy leftist regulation on building. In other words pricing a function of regulation which is an artificial hold up. 4. Foreign investment will continue to soak up supply (also ties into (3)). If anything now is the time to buy. A house worth $250,000 today has a "2007 crisis price" of $500,000. Housing is slowing a little but still in general growing around 3-4% a year as expected. Given there are dozens of industries still able to work in the crisis we will see a transfer of houses from the affected to the unaffected - something that didn't occur in 2007 since nearly everyone ate shit on the deal.
So you disagree with me and would be one who would buy a house at 2019 prices now? By the way, house prices in NYC and the SF Bay area, the two highest priced housing areas in the country, aren't that way because of "Heavy leftist regulation on building." They're that way because every square inch of a peninsula is already built on and there's huge demand for people who want to live in said "heavy leftist" places. And I know you know that. House prices in Klamath Falls or Redding aren't any higher than any other comparable place, despite being in the same "Heavy leftist" states, because not as many people want to live there, there's lots of room to build more, and when you don't have to coordinate several million people living in a couple square miles life is much easier. Supply and demand does a lot better job of explaining things than partisan lenses.