15 minute read
SMALL BUSINESS
Some of the shuttered storefronts across New York will likely never open again.
Some New York lawmakers think insurance companies should pay out to small businesses shuttered due to the pandemic – regardless of what their policies say. COVERAGE FOR THE CORNER STORE
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by REBECCA C. LEWIS
AS THE CORONAVIRUS pandemic rages in New York, more and more businesses are shuttering, both temporarily and permanently. The federal government has been providing relief across multiple aid packages, but for some struggling small-business owners, it hasn’t been enough.
Some owners are turning to their business interruption insurance policy for a payout to keep them afloat, only to find out that type of insurance doesn’t cover pandemics. Lawmakers in New York say insurance companies are trying to game the system during an unprecedented crisis. The state Legislature is considering legislation that would force insurance companies to make claim payments even when the contract doesn’t include, or even explicitly excludes, pandemics. But members of the insurance industry say business interruption insurance was never intended for the kind of situation the country is facing, and forcing payments would be an illegal move that could bankrupt the industry.
Business interruption insurance is one type of policy that small businesses can purchase to help safeguard them against tough times. As the name implies, policyholders can make a claim when their business operations get interrupted due to some form of natural or man-made disaster. Following the SARS outbreak nearly two decades ago, most policies began to say that pandemics and viral or bacterial outbreaks were not covered. And even when the contract doesn’t mention pandemics, insurers are still refusing to pay out claims.
Assemblyman Robert Carroll, the sponsor of legislation that would make small-business policyholders retroactively covered, said this is unconscionable. “The reasonable small business purchases this insurance for times just like this when, at no fault of their own, because of a natural disaster, their business is interrupted,” Carroll told City & State. He said even though many policies exclude pandemics, these small-business owners have no negotiating power to change the terms of their contracts. Carroll added that even if someone asked for additional coverage in the case of a viral or bacterial outbreak, such a policy doesn’t exist. In other words, small-business owners who have been paying premiums for years are now being blindsided by a disaster that their insurers say they have no responsibility to cover, Carroll said.
But the insurance industry believes those arguments are flawed, and that Carroll’s damage to a business as the result of a natural disaster like a hurricane. This is explained clearly on the website for the state Department of Financial Services, the state agency that regulates insurance. In an FAQ for small-business owners about the coro
“HOW CAN YOU IMPOSE UPON THEM AN OBLIGATION TO PAY FOR CLAIMS FOR WHICH THEY NEVER ACCEPTED A PREMIUM?” – DAN KOHANE, HURWITZ & FINE P.C. SENIOR PARTNER
legislation could have dire consequences for the industry. Laura Foggan, who leads the insurance group at the law firm Crowell & Moring LLP, said that business interruption insurance is specifically intended for when there is physical or structural navirus, the agency wrote that “any claim would still need to be related to your property damage for coverage to be triggered,” even if the contract doesn’t explicitly exclude pandemics. Foggan said that when that language was added following the
REWRITING THE FINE PRINT NEIL BRESLIN CHAIRMAN, STATE SENATE INSURANCE COMMITTEE
“When you purchase business interruption insurance,” Assemblyman Robert Carroll argued, “you reasonably expect that if your business is closed down by the government … you’re going to get paid.”
How has the pandemic affected small businesses? A lot of businesses have fire insurance, flood insurance, and if those things happen then it interrupts their business (and) there’s an insurance policy. There’s been over the last number of years discussions about pandemic insurance, but that really hasn’t had any traction. Most insurance policies would specifically say viruses are excluded in contracts because most insurance companies were unable to really measure that risk. When they did, it was so expensive it would preclude anybody from carrying it.
Some of your colleagues are proposing that pandemic coverage apply retroactively to small businesses, what do you think? If this were ever allowed to happen, and it passed the muster challenge in court, it could cost upwards of $25 billion to $30 billion. I feel very sad for small businesses who obviously didn’t expect this to happen. We have to make sure that there’s state, local and federal intervention to make sure they can bridge the gap. But I don’t think you can do it by attacking insurance contracts to change it retroactively.
What lessons do past disasters have for making pandemic coverage affordable moving forward? After the World Trade Center, construction just stopped in New York City because insurance companies were reluctant to insure the construction of the new high-rise buildings. That’s when the federal government stepped in and said: “OK, let’s work out an arrangement where you’ll cover the first $1 million and we will cover you for the remainder. We will be the backstop.” It worked out well. ... I don’t think that businesses want to continue unless they have some coverage in that area. And I think the government is going to have to come in with a backstop.
SARS outbreak, it was more for clarification – she argued that business interruption insurance would never have covered such a situation since it doesn’t cause property damage. “It is not designed to respond to the risk of bodily injury,” Foggan said. “That’s a different kind of risk and a pandemic is, by its nature, a very different kind of exposure.”
While sympathetic to the plight of small-business owners that Carroll’s legislation would help, Foggan said that forcing insurance companies to pay claims for situations that are not covered is not the solution. “These kinds of bills definitely present serious constitutional questions,” Foggan said. “And enacting a bill that would retroactively alter the terms of coverage to force insurers that didn’t insure these claims to pay them would have very serious implications.” She suggested it could bankrupt the industry because it’s not prepared to make payments for claims it never intended to insure.
Carroll pushed back on that assertion, saying that the industry is sitting on $900 billion in reserves, so it can afford to pay these claims. “Just because this natural disaster is gigantic, doesn’t mean we should let the insurance industry off the hook,” Carroll said. His legislation would also create a fund to help insurers if the companies encounter financial hardships as a result of the new coronavirus-related payments. Carroll added that there are legal arguments that the coronavirus constitutes property damage because it rests on surfaces, even if it’s invisible. “When we look at contracts, one of the standards we look at is what did the parties reasonably expect to get from that contract,” Carroll said. “And when you purchase business interruption insurance, you reasonably expect that if your business is closed down by the government because of some natural disaster … that you’re going to get paid.”
Foggan said that the insurance industry’s reserves are there to pay the thousands of other claims it receives, and that if it gets depleted under this legislation, other policyholders requesting payouts would be punished. She also dismissed the argument that the virus is causing physical damage, saying that advocates’ arguments are a stretch that existing case law does not support. Foggan also said that existing policies don’t offer coverage for forced government closures in any sort of situation. Even with something called contingent business interruption insurance, which covers businesses forced to close without sustaining property damage, there must be damage to nearby businesses that has caused the interruption.
Bookstores like the Strand were already having a tough time before the crisis.
Dan Kohane, a senior partner at the law firm Hurwitz & Fine P.C., said that legislation like Carroll’s is trying to solve a massive problem with no easy solution by laying it unfairly at the feet of the insurance companies. “How can you impose upon them an obligation to pay for claims for which they never accepted a premium?” Kohane asked. He said that all policies sold in the state needed approval from the state Department of Financial Services, which has known for years that many business interruption contracts explicitly exclude pandemics. Carroll said that this is a problem the agency should have addressed long ago, but said the regulators who “allowed” that to happen had “no idea” a situation like the one we’re facing now would happen. The department did not return a request for comment about why it did not previously take action on this issue and whether it would step in with new regulations now.
Carroll’s legislation, first introduced in March, recently gained a sponsor in state Sen. Andrew Gounardes to carry the bill in that chamber and has support from members of the hospitality and nonprofit industries. But given the potential legal implications and strong opposition from the insurance industry, small-business owners looking for relief may not find it through his bill. ■
GONE FOR GOOD SOME OF NEW YORK CITY’S MOST BELOVED BUSINESSES MAY NOT SURVIVE THE CORONAVIRUS.
SMALL BUSINESSES in New York City are fighting for their survival amid the COVID-19 outbreak. After over a month without earning any revenue, many, including long-standing icons like Manhattan’s Strand bookstore, have laid o the majority of their sta . The independent bookseller has filed a request to be designated an essential business, so that it could take and fill online orders.
The Strand is just one of many wellknown businesses and cultural institutions that may not survive COVID-19 pandemic and its economic repercussions – or that have already announced their closure, leading many New Yorkers to fret about a potentially devastating blow to the city’s character.
Here are some of the city’s icons that may permanently shutter as a result of the coronavirus.
COOGAN’S
The Irish pub, a multiethnic gathering spot in Washington Heights, Manhattan, recently announced it would not be reopening due to the pandemic. The bar and restaurant, which first opened in 1985, was a sanctuary in a neighborhood tormented by violence and the illegal drug trade during the 1990s. Its guests included Dominican Americans, African Americans, Caribbean Africans, Irish Americans, Jewish-German refugees, o -duty NYPD o icers and medical workers from nearby Columbia University Irving Medical Center, the largest campus of NewYork–Presbyterian Hospital. However, now the time has come for New Yorkers to bid farewell to Coogan’s. According to The New York Times, the bar’s owners convinced a beverage supplier to take back cases and kegs of beer to meet the last payroll.
FORBIDDEN PLANET NYC
One of the oldest and biggest comic book stores in New York City, a few blocks from the Strand, Forbidden Planet may close permanently. Since its opening in 1981, the science fiction emporium has occupied three di erent locations on the same block, just south of Union Square. Due to its closure amid the pandemic, the store has not made any revenue in a month, according to Je Ayers, Forbidden Planet’s general manager.
TENEMENT MUSEUM
Many museums are housed in former mansions, displaying the art and furniture of the rich and famous. Few are in decrepit, dimly lit apartments, documenting the lives of the poor and anonymous – but that’s what the Tenement Museum on Manhattan’s Lower East Side does. According to a report published by the public policy think tank Center for an Urban Future, the Tenement Museum is among the cultural institutions hardest hit by the virus. Its loss would be significant to many New Yorkers – especially the millions who trace their lineage to the Irish, Italian and Jewish immigrants whose first New York homes were tenements in Lower Manhattan. But, according to The New York Times, with 75% of its $11.5 million annual operating budget coming from admissions and gift shop sales, the museum will struggle to survive the pandemic.
UPRIGHT CITIZENS BRIGADE
The 30-year-old improv group, which has long served as a home to up-and-coming comedians, is planning to close its permanent theater in Hell’s Kitchen and its training center on Eighth Avenue. The organization formed in the 1990s and soon grew into a comedy hub and launching pad for A-list comedians, including Ellie Kemper, Aziz Ansari and Kate McKinnon. The pandemic closure is the final straw, after years of successive struggles to pay rent, property taxes and other expenses.
NEIR’S TAVERN
Saved by Mayor Bill de Blasio in January, the historic 19th-century bar in Woodhaven, Queens is once again on the cusp of death. The mayor facilitated a handshake deal for a new five-year lease between bar owner Locyent Gordon and building owner Henry Shi. With the closure of restaurants mid-March, Neir’s Tavern began o ering take-out and delivery service. However, Gordon decided to close the business for the month of April, to protect guests and sta . According to Gothamist, Gordon applied for relief funds and asked Shi for two months’ rent forgiveness.
GOTHAM BAR & GRILL
The fine dining restaurant in the West Village closed after 36 years of service. Last summer, the upscale American restaurant, marked by chef Adam Portale’s 34-year tenure, hired a new chef, Victoria Blamey, hoping to attract younger diners. However, despite good reviews, including Michelin stars and James Beard Awards, Gotham Bar & Grill experienced financial hardship. A spokesperson for the restaurant told Eater, “The situation created by the coronavirus has made the operation of the restaurant untenable.”
LUCKY STRIKE
After 31 years in business, SoHo restaurant Lucky Strike is closing. Keith McNally, the owner of the French-American bistro, who himself had COVID-19, told Grub Street that the COVID-19 pandemic made its financial situation impossible to fix. According to a statement on its website, the restaurant stopped o ering take-out and delivery options as of March 22 in the “interest and well-being of its customers and sta .” – Amina Frassl
For many establishments, online orders alone can’t sustain the business. The Tenement Museum, for example, makes 75% of its budget from admissions and gift shop sales.
SHUT OUT OF THE STIMULUS
Fighting for the money that should have gone to small businesses
THE FEDERAL GOVERNMENT’S rollout of another $310 billion in small business aid was hampered by more delays and confusion last week, adding to concerns that mom and pop shops on the verge of financial ruin are still being shut out. In New York, officials are raising alarms that the federal program needs more than just additional money – it also needs more oversight, more transparency and more flexibility for small businesses relying on the aid, they say.
The federal Paycheck Protection Program was established under a federal coronavirus relief bill passed in March, offering forgivable loans to businesses and nonprofits with 500 or fewer employees.
But the program’s initial rollout last month was marred by confusion from lenders and business owners over vague guidance put out by the federal government, and the $349 billion allotted ran out within two weeks. The deluge of applications from businesses overwhelmed the system shortly after it reopened on April 27.
“The issue that we have right now is that in order to address whether or not there is sufficient money – and my educated guess is not, this is too deep, too many businesses are suffering – we need data and transparency, and I’ve been asking that from Treasury and the Small Business Administration,” Rep. Nydia Velázquez, the chair of the House Committee on Small Business, said during a City & State webinar on April 28.
While there have been reports of small employers struggling to get funding, a number of publicly traded companies have collectively gotten hundreds of millions of dollars through the program. Shake Shack, the Los Angeles Lakers and Ruth’s Chris Steak House are among some of the recipients who have now pledged to return the loans.
Large banks such as JPMorgan Chase, Citibank and U.S. Bank have drawn criticism for prioritizing wealthier clients applying for the loans over small businesses, as The New York Times reported last month.
“Banks are not focused on small businesses,” Gregg Bishop, who heads New York City’s small business agency, said during the webinar discussion. “They are not interested in providing technical assistance, the level of lending is just not worth it.” Manhattan Borough President Gale Brewer, another panelist in City & State’s webinar, agreed. “I think the banks are the bad guys,” Brewer said. “The big banks, in this particular scenario … because that’s where I got the most complaints.”
The second round of $310 billion allocated to the Paycheck Protection Program includes $60 million in additional funding to smaller lenders such as community banks and credit unions, which officials say better prioritize smaller organizations.
It’s difficult to understand how much of the funding actually went to small employers because the U.S. Small Business Administration has yet to make the information public. - Kay Dervishi
THANK YOU
to all of New York’s first responders, health care workers, state leaders, health plans and providers for your extraordinary efforts during these challenging times.
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