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During the weekly meeting of a House committee looking at the economic fallout of COVID-19 on Monday, House Speaker Scott Saiki called on Hawaii’s insurance commissioner, Colin Hayashida, to discuss coverage for businesses shut down amidst the pandemic.

Saiki wanted to know if insurers were paying claims made by companies under business interruption insurance policies. Hayashida said he hadn’t heard of anyone making a successful claim.

“The problem is that in almost any context insurance can deny a claim,” said Saiki, who later explained he had heard businesses in Hawaii have been denied. “That should not be happening here.”

With local banks and the U.S. Small Business Administration now rolling out billions of dollars in stimulus money to help bail out small businesses bludgeoned by government-mandated closures and the virtual shutdown of travel to Hawaii, questions about business interruption insurance might seem trivial — a technical footnote amidst the larger $2.2 trillion stimulus.

But the House Speaker’s comments — and his calling the state’s top insurance regulator to testify before the House Select Committee on COVID-19 Economic and Financial Preparedness — show how important the policies could be for firms trying to survive the pandemic.

“The insurance commission should help with those claims,” Saiki said.

A National Issue

It’s hardly just Hawaii.

Nationally, insurers anticipate upward of 30 million business interruption insurance claims related to the COVID-19 crisis, said Steve Badger, a partner with the , who represents several large insurance companies. The previous record in one year was 10 million in 2005, a year when there were three hurricanes in Florida, Badger said.

“This is like a hurricane that hit every state,” he said.

One issue is that the Paycheck Protection Program loans central to the stimulus package . So hospitality industry leaders are readying for battle, armed with lawyers, political lobbying and public relations campaigns.

One group of celebrity chefs already has teamed with a high-profile trial lawyer to pressure insurers to pay claims. The group — which calls itself the , or BIG — includes , , �����Ի� . They’ve teamed with New Orleans plaintiffs lawyer John W. Houghtaling II, owner of the that led the national tobacco litigation that resulted in a $286 billion settlement.

Keller, who already filed a lawsuit in California, met with President Trump to discuss the concerns, according to a press release issued on Monday.

In Hawaii, hotelier Jonathan McManus, owner of , has joined the fray. To McManus and the other hospitality executives, the issue is simple: policies are meant to cover business closures resulting from a number of things. These include not just catastrophes, like fires that can shut down a business, but also orders by a civil authority, such as a state or local government.

Here, McManus says, the state of Hawaii and county governments have effectively shut down the tourist industry by imposing policies like stay-at-home orders, curfews and a mandatory, two-week quarantine for tourists arriving in Hawaii.

“In our minds, it’s the largest interruption of business by a civil authority that we’ve ever seen,” McManus said.

But to insurers, the issue is not so simple.

Badger said determining whether the insurance coverage is triggered requires a three-part analysis. The first question is whether the policy has an exclusion for virus damage, which, he said, many policies have.

If the policy has an exclusion, he said, that ends the analysis; there’s no coverage. If there’s no exclusion, the next question is two-fold: is the COVID-19 virus present, and if so, did the virus cause tangible damage to the property? If not, he said, there’s no coverage.

The civil authority trigger doesn’t apply to the current shutdowns, he said. It relates to businesses forced to close because, for example, a neighboring property was damaged and authorities shut down a whole block for safety reasons, Badger said. If there’s no physical damage, there’s no valid claim, he said.

“While everyone is sympathetic to the small businesses for these losses, if the insurance policy was not written for this coverage, you should not expect the insurance companies to gratuitously pay,” Badger said. “They’re not benevolent societies.”

Keller’s lawsuit, filed in Napa County, asks the California court to settle the dispute with a declaratory judgment saying whether the civil authority provision was triggered when authorities issued stay-at-home orders and mandates which shut down his acclaimed restaurants, Bouchon Bistro and the French Laundry.

Houghtaling, who is representing Keller, said Badger’s arguments are standard and usually get passed on to agents who pass it to their customers, discouraging pursuit of claims.

McManus said it’s important for business owners to get another opinion.

“There are a lot of questions and a lot of misinformation,” McManus said. He added, “Your insurance broker is not your attorney.”

Houghtaling said the insurance carriers have plenty of money to pay claims in a $822 billion reserve. Badger said the industry needs the money in case it has other claims to pay.

Houghtaling said it makes no sense for the insurers not to use the money it has to pay claims simply because the companies fear running out.

“It’s like the captain of the Titanic saying, ‘We don’t have enough lifeboats, so we’re not going to drop any,’” he said.

Help For Insurers In Stimulus Phase IV?

One idea to help prevent insurance companies from running out of money is to backstop those who make claims by providing money in an anticipated fourth stimulus package from Congress. Houghtaling and McManus both said they support the proposal in principle.

But Badger said it might make more sense for the U.S. Treasury simply to pay companies directly for business interruption losses.

In the meantime, properties in Hawaii face a dilemma, McManus said. He had little choice but to furlough the 125-person staff at the 72-suite property and shut it down. In addition to the costs of running a hotel as the numbers of visitors declined, McManus said the hotel had a duty to protect staff and guests from a potentially spreading virus.

The SBA’s Paycheck Protection Program loans provide some relief, he said. But it only covers payroll costs for about two months and requires rehiring 85% of his staff. The result would likely be rehiring the staff only to furlough them again in the likely event that the loan money runs out before tourists return to Hawaii in large numbers, he said.

McManus said he’s made a claim to his insurer, Dongbu Insurance, and hasn’t heard back. He said he’s not optimistic, based on what he’s heard.

But he said, “We wholeheartedly believe that we paid for a business interruption policy the carrier should make good on.”

“Hawaii’s Changing Economy” series is supported by a grant from the as part of its CHANGE Framework project.