Insurance by free pictures of money is licensed under CC BY 2.0
Insurance by free pictures of money is licensed under CC BY 2.0

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Small businesses have largely struck out when trying to get their insurance companies to pay out claims related to the revenue they’ve lost due to COVID-19. Business owners believe their business interruption insurance should kick in. Some have even filed lawsuits against their insurance companies, hoping the courts will compel insurers to pay. 

Business interruption insurance typically covers establishments when they have to shut down or reduce their operating capacities after suffering physical property loss or damage from disasters like fires or floods. Some attorneys argue “damage” encompasses the loss of use of a businesses’ premises, which is precisely what’s happening to non-essential businesses during the public health emergency.

Last week, the Council began considering legislation that would compel insurance companies to pay out these claims, giving small business owners hope. Ward 6 Councilmember Charles Allen led the charge. The wide scope of the initial provision narrowed significantly by the time the final version of the legislation was released this morning.

The resulting provision stated insurers cannot deny a claim for “loss of use and occupancy” created by the city’s order declaring a public health emergency back in early March, even if there isn’t physical loss or physical damage to a business’s property. The proposed mandate was limited to businesses with fewer than 50 employees and less than $2.5 million in annual sales and only required insurers to pay 50 percent of losses. 

Narrowing the scope wasn’t enough for insurance agencies. The president and CEO of the American Property Casualty Insurance Association, David A. Sampson, issued a statement strongly opposing the mandate: “The Council’s proposal could compromise the financial ability of insurers to meet their everyday promises and could have dramatic negative repercussions for all D.C. families, individuals, motorists, and businesses,” the statement sent to City Paper reads. “Business interruption policies do not typically cover losses related to viruses, but rather require that physical damage must have occurred in order to trigger coverage for such losses.” 

Council Chairman Phil Mendelson pulled the provision from the bill after several councilmembers expressed concerns during the legislative session. Ward 5 Councilmember Kenyan McDuffie was the first to ask his fellow councilmembers to strike it.

“It’s going to perhaps send a false sense of hope and promise to a community of folks who need action and relief now,” McDuffie said. He believes it would become tied up in litigation, delaying the timelines of any possible pay out. He says he talked with insurance agencies who told him costs would go up significantly. They also challenged the constitutionality of the provision, according to McDuffie. 

Mendelson says he spoke with Attorney General Karl Racine about the Council’s strategy to try to force insurance companies to pay business interruption insurance related to COVID-19. “He issued an opinion from his legal counsel division that says we do have the authority to do this,” Mendelson said during today’s meeting. “Those of us who aren’t lawyers know of the constitutional provision that states cannot impair contracts. That’s not absolute. In an emergency, it’s possible for government to step in.” 

At-Large Councilmember David Grosso and Ward 3 Councilmember Mary Cheh also came out against the provision, first touting their relevant career experience. “As an attorney, I feel we are stepping into uncharted territory in a way that I would not advise us to do,” Grosso said. “I don’t see why we would insert ourselves in this situation when there are already court cases out there trying to work this through. We’re short-circuiting those court cases, which isn’t an appropriate legislative role.”

Grosso also talked about how other cities or states have considered similar measures, but haven’t gone through with them yet. “There isn’t another jurisdiction that has done this,” he said. “There’s a reason why they haven’t done this.”

“I teach, as part of constitutional law, about impairment of contracts,” Cheh added. She said she knows the provision would be challenged in court. “I know the tests and the cases. While we’d have a good argument, it’s not a slam dunk and the insurance companies would have a good argument.” 

Allen stood by the provision until the end and expressed disappointment that the Council is allowing “the insurance industry to frame the conversation.” He believes agencies are overestimating their potential losses. 

APCIA estimates that closure losses just for the D.C. small businesses with fewer than 50 employees this legislation targets could range from $90 million to $447 million per month. The trade association tells City Paper that even if only 50 percent of these losses are covered, the covered losses could range from $45 million to $223 million per month. Premiums, APCIA says, amount to about  $16 million a month. 

“I don’t think insurance companies are in a place where they’re laying off all their employees overnight or questioning whether they can open their doors,” Allen said. “We want to fight for our small local businesses. Of course insurance companies will say rates will raise if the have to make payouts. They will fight tooth and nail against this. They’re trying to convince us not to take any action.”

He worries leaving it up to the courts won’t serve the small businesses that make up D.C. neighborhoods because they may not be able to afford to hire “high-power” attorneys. “We are in uncharted waters, but business interruption insurance is there for the disaster be it natural or manmade,” he said. “No question we’re in a disaster.”

The idea isn’t dead. Mendelson suggested the Council will continue to discuss it over the next two weeks before the next virtual meeting.

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