Restaurants And Lodging Industries Fight Back
More than a year into the global pandemic, there is an indication of how disruptive COVID-19 has been to businesses across the spectrum. Stay-at-home orders, prohibitions on certain “non-essential” businesses, reduced capacity limits, and fear of the disease have killed some businesses and left others struggling to survive while hoping for a return to normalcy as more people become vaccinated.
These results were widely recognized possibilities when emergency orders were being issued, but almost no one had a real sense of the economic devastation that these changes could cause. Most businesses focused on a near-term situation without trying to establish long-term strategies for survival in a prolonged state of emergency. Alex Ray, owner of the Common Man family of restaurants in New Hampshire, remarked, “How can you think about the draining the swamp when you’re facing alligators?”
Restaurants and lodging establishments were particularly hard-hit as customers stayed away by choice or by order. Patrick’s Pub in Gilford almost immediately experienced a 90 percent drop in revenue and laid off 75 of its 85 staff members. Reuben Bassett of Burreto Me closed three out of four restaurants, and the one remaining open in downtown Laconia saw an immediate 60 percent reduction in sales — keeping going only because it was well-placed for take-out orders. For Mark Poirier, owner of The Lodge at Smith Point in Alton, remaining open was not an option.
“I’m frustrated and a little annoyed,” he said at the time. “We’re a dine-in business, and the take-out option doesn’t work for us, but other people are allowed to keep going.”
Like most businesses, Poirier counted on the business insurance he carried to help him through the shut-down. Also like most businesses that have tried to collect on a claim, he was told that his business interruption insurance would not cover the pandemic because the disease did not cause “a direct physical loss” as the language of the policy stated.
“I’ve put millions of dollars into the hands of the insurance companies, and in my hour of need, where are they?” he asked.
In fact, the insurance companies’ positions are not as straightforward as they say. Courts have ruled that, without a specific exclusion for a particular type of loss, the policy does cover unnamed situations. An example in environmental law was a ruling in a case in which the insurer claimed that the company’s policy did not cover hazardous site cleanup costs. The court ruled that, because the policy did not exclude environmental cleanup, the insurance company was obligated to pay the claim.
When asked for the New Hampshire Insurance Commissioner’s view of such claims, Information Officer Eireann Sibley said, “The exact scope of coverage provided by an insurance policy requires one to analyze the policy consistent with Supreme Court precedent. It is ultimately a matter of law for the judicial branch to decide.”
Sibley referred to a case brought by Alex Ray, Great American Dining, Inc. v. Philadelphia Indemnity Insurance Company in which the New Hampshire Supreme Court stated, “An insurer’s obligation is not merely to defend in cases of perfect declarations, but … [i]n cases of doubt as to whether the writ against the insured alleges a liability of the insurer under the policy, the doubt must be resolved in the insured’s favor.” The justices summed up the matter by stating, “The fundamental goal of interpreting an insurance policy is to carry out the intent of the contracting parties.”
Business owners who take out an insurance policy expecting it to cover all business losses during an interruption of service need to watch for any exclusions written into the policy, but if none are there, they have a case to make. If there are exclusions, they need to seek out supplemental coverage to make sure they are fully insured.
Schleicher and Stebbins
A lawsuit making its way through the Merrimack County Superior Court is a case in point. Schleicher and Stebbins Hotels, a group of 23 hotels in New Hampshire, Massachusetts, and New Jersey, are claiming “tens of millions of dollars” in business income losses which their insurers are refusing to pay.
In their pleading, the hotels state that they paid more than $950,000 in premiums for “all risk” property insurance policies that provide $150,000,000 in coverage, including business interruption coverage.
“The risks associated with viruses and pandemics have been known to the insurance industry for a century and have been well known to Defendants in recent decades,” wrote attorneys Michael Lewis of Rath, Young and Pignatelli of Concord and Marshall Gilinsky of Anderson Kill in New York. “Because these risks are well known, there are exclusions in common usage in the insurance industry that specifically reference losses caused by viruses and pandemics. However, none of the Defendants included any such exclusion as part of the Policies they sold to Plaintiffs.”
The hotels had filed a claim and asked for advance payment last May, but their insurers delayed and ultimately denied payment, saying that the policy did not cover pandemic losses.
“Businesses generally buy insurance for their property and business income to insure that their property functions and produces revenue,” the attorneys wrote. “When property is impacted in a way that renders it incapable of producing income, whether it is caused by a fire, or a flood, or toxic fumes, or a virus — the loss or damage from any of these causes is the same.”
They added, “Simply put, the fact that contact with such damaged property could be fatal to such customers and potential customers prevents them from receiving the Hotels’ goods and services.” They put those losses at $16,300,000 per month.
The defendants — Starr Surplus Lines Insurance Company with underwriters at Lloyd’s, London; Everest Indemnity Insurance Company; Hallmark Specialty Insurance Company; Evanston Insurance Company; Axis Surplus Insurance Company; Scottsdale Insurance Company; and Mitsui Sumitomo Insurance Company of America — responded to the lawsuit by claiming that the hotels failed “to state a claim upon which relief can be granted” and said there was a lack of coverage for the specific claims.
“Plaintiff’s alleged claims under the Extensions of Time Element Coverage provisions of the Policy are barred unless Plaintiff can establish they were resulting from direct physical loss or damage, not otherwise excluded, as required by the policies,” the attorneys wrote.
Suing The Governor
State governors’ executive orders that shut down business make up part of the Schleicher and Stebbins case, but Mark Poirier is taking it a step further. Last month, he filed a complaint with the Alton Police Department, charging theft by Governor Chris Sununu.
“Basically, he shut us down without due process,” Poirier said.
The criminal complaint states, “On 16 March 2020, Governor Chris Sununu issued an over-reaching, illegal and un-Constitutional order to close all restaurants across the state of New Hampshire. … It is my contention that this illegal and un-Constitutional order constitutes theft under NH RSA Section 637:3. Theft by Unauthorized Taking or Transfer, and possibly other provisions of the New Hampshire Revised Statutes Annotated.”
He continued, “This theft cost me hundreds of thousands of dollars in lost revenue and cost my 18 employees their livelihood.”
As justification for the complaint, Poirier cites a case in the U.S. District Court for the Western District of Pennsylvania, County of Butler v. Wolfe. “In that case, it was determined that the Governor of Pennsylvania’s closure order was ‘…unconstitutional and overbroad’” Poirier stated.
The New Hampshire Attorney General’s Office and the New Hampshire Lodging and Restaurant Association did not respond to requests for comment.
“When you and I first spoke,” Poirier said, “I made the prediction that the economic fallout of this was going to far outweigh the health implications to this nation. … I’m not trying to minimize this; it’s a nasty bug, there’s no question about it. But the overreaction and knee-jerk insanity of government officials in shutting down companies like mine and others — small businesses that drive this nation — while the Walmarts and everyone else can remain open basically unfettered, it’s wrong, it’s simply wrong. And there’s a lot of people hurting because of that.”
Poirier’s business, Relentless Restaurant Group, has ceased operation because of the order, and a lot of his employees found other employment. “And good for them,” he said. “They weren’t just going to sit around on their asses to collect; they actually went and found gigs; but they weren’t coming back, so that made it a little bit more difficult.”
He concluded, “I’m not going to claim to be a crusader or anything like that, but at the end of the day, there’s a lot of people who are in a lot worse position than I am. And it stinks, and I’m hoping we can proceed in a manner that we can come out on top of things, and that it helps others as well.”
This article is part of a series on the hidden double-helix economic threat from biological and virtual viruses. Contact Tom Caldwell at [email protected].