Portland chef Carlo Lamagna sat in his empty restaurant and called his insurance broker. He wanted to file a claim, even though he’d been warned it would likely be denied.
It had been just seven months since Lamagna opened his Filipino restaurant, Magna Kusina, dedicating it to his late father. But then, Oregon Gov. Kate Brown closed the state's restaurants as she tried to keep the coronavirus pandemic from spreading too quickly and overwhelming hospitals.
“The filing of the claim, it’s just … it’s not gonna get us anywhere?” Lamagna asked his broker. “At all? Zero?”
When an insured business loses income because of fire or storm damage, it may file a claim for lost revenue. That protection — known as “business interruption” coverage — is often included within an insurance policy’s property coverage.
But as the coronavirus shutters small businesses across the Northwest, business owners are bracing for a wave of insurance denials. That’s because insurers have been telling businesses that coronavirus losses don’t count.
On the phone, Lamagna answered a few questions from his broker. No, he wasn’t doing take-out or delivery, even though the governor left that option open.
“We’re completely closed. I mean, we have to do what we can to flatten that curve, try to get it down,” he said.
And then, the hardest question of all.
“I did,” he said. “I laid all of them off.” Nine employees that he considers family.
Business interruption coverage is typically tied to a physical loss at a business, according to Kenton Brine, president of the industry-supported NW Insurance Council.
“A fire, a theft, a break-in. A storm that damages the building and forces the business to close,” he said. “What they’re not designed to cover and what, in almost every case, they specifically exclude, are viruses and bacterial infections.”
After the SARS epidemic, many insurers adopted this exclusion for losses caused by or resulting from any virus or bacteria.
Brine said if insurance was meant to cover epidemics, policies would be vastly more expensive.
“This is a very hard risk to rate for,” he said. “You don’t know how widespread an epidemic or pandemic will become. Look what we’re going through now where we don’t know how long these emergency orders will be in effect.”
Andy Ricker never thought to scour his insurance policy for a virus exclusion. In the past, the chef-owner of Portland's famous Pok Pok restaurants thought more about earthquakes and floods. It took coronavirus to read the fine print.
Ricker filed an insurance claim, but he wasn’t optimistic.
“I have zero faith that the insurance companies will do anything except for fight this tooth and nail,” he said.
Last week, Ricker completely closed his restaurants — no more takeout. Kitchens are close quarters, and he felt he couldn't keep his staff safe. "I simply cannot bear the thought of one of our team becoming ill for the sake of preparing some chicken wings," he wrote on Instagram.
He’s now laid off about 150 people.
“It’s devastating,” he said. “Anybody’s who’s worked in a restaurant will understand, it’s not just a bunch of names on a list. You eat together. You work together. Some people have been with us for years and years and years.”
He said an insurance payment could make the difference between reopening or not. He’s skeptical that taking on emergency loans will help restaurant owners like him, who already carry substantial debt and need cash.
While the claims process has just begun for businesses hoping to recover coronavirus-related losses, the messaging may be well underway.
"The insurance industry has effectively attempted to dictate the media narrative on this," said Mike Farnell, an insurance recovery lawyer with Parsons Farnell & Grein in Portland. He represents policyholders when their claims are denied.
His message to businesses: Read your policy.
“Don’t assume that you don’t have coverage for COVID-19-related losses,” he said. “Don’t take the insurance industry’s word for it, because obviously they have a stake.”
Consider the core argument that a virus can’t physically damage property, the way a fire can. Farnell said courts around the country have already recognized that the loss of functionality at a business, for example from fumes or wildfire smoke, is enough to trigger coverage.
“So if every time somebody comes through your retail facility there is a risk that that virus is being deposited on your surfaces, that can be enough to constitute this sort of direct physical loss of or damage to property that we need,” he said.
He said the exercise of civil authority — for example the governor shutting down many of the state’s businesses — may also help ground a business interruption claim.
Despite what business owners might be hearing, not all policies carry a virus exclusion, according to Farnell. And not all virus exclusions are insurmountable.
As for restaurant owner Carlo Lamagna, he ended his call with his insurance broker feeling determined to save his business.
“I’m gonna fight with my dying breath,” he said. “I will. For my own family and for my extended family that is this restaurant.”
Around the country, other businesses are already filing lawsuits against their property insurers for denying coronavirus claims. That means the final word in some of these disputes may come after court battles, possibly long after the pandemic has subsided.