COVID-19 claims piling up as insurers balk at paying

Coronavirus-hit small businesses frustrated by the situation

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Federal aid is drying up, so small businesses are looking to insurance companies for help, and they aren’t getting it.

restaurant  is Washington has slapped an insurance giant with a class action lawsuit for refusing to pay a COVID-19 claim they filed as part of their business interruption insurance coverage.

GCDC Grilled Cheese Bar is sandwiched in a Washington neighborhood steps away from the White House. Springtime in the nation’s capital is the peak season for cherry blossoms and it is a time of year when the town blooms with tourists visiting  the nation’s monuments.

But instead of being packed with guests, GCDC had to close its doors due to the COVID-19 pandemic after to-go orders didn’t bring in enough business. Bruce J. Klores, owner GCDC Grilled Cheese Bar told FOX Business they saw sales drop over 90 percent.

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“We did the best that we could for the first 10 days of April, trying all sorts of creative ways to package our meals and wine and beer to go or to be picked up by third-party server services," Klores mentioned. "But none of that proved to be worth it for us.”

Instead, GCDC temporarily shut down on a day they usually celebrate: National Grilled Cheese Day.

For six years, Klores says he paid his business interruption insurance premiums every month to Hartford Financial Service Group. He filed a claim after a national emergency was declared in March, which forced businesses to shut down in-store dining.

“The Hartford was pitched to us as being the best coverage for restaurants, that they were aggressive, that they wanted restaurant's business ... part of what the Hartford had to offer was this sort of generous business interruption policy," Klores said.

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The lawyer bringing the class action suit, Geoffrey Graber a Partner at Cohen Milstein, told FOX Business that he’s heard the same story from hundreds of small business owners around the country.

"We've talked with hotel owners," Graber explained. "We've talked with people who own gyms. Nightclub owners, you name it. We've talked with a lot of different small business owners, medium-sized business owners around the country. And they all tell the same story: They've made claims for the insurance that they purchase, that they paid their hard-earned dollars for ... And none of those claims are being honored. None.”

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A spokesperson with Hartford, Matthew Sturdevant told FOX Business they aren’t holding back any pay-outs for valid claims saying they pay often and a lot to their customers,

“Tragically, millions of businesses across the country have closed their doors because of government-ordered shutdowns," Sturdevant lamented. "Unfortunately, viruses are generally outside the scope of business interruption coverage due to the absence of any physical damage. These policies do not cover this exposure and, accordingly, premiums were never collected for it.”

Around 34 percent of small businesses in the United States pay for business interruption insurance, according to data from the Insurance Information Institute. And many of them are having trouble getting their COVID-19 claims paid too.

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But the primary national trade group for insurers, American Property Casualty Insurance Association estimates only a third of businesses who have business interruption insurance actually have pandemic coverage.

Graber disagrees.

“Businesses like Bruce’s have got business interruption insurance for just these type of circumstances ... It covers situations almost all the time, where there's been some type of civil order that shuts the business down or prevents people from coming in ... the insurance carriers are denying these claims across the board," Graber said.

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Insurers cannot shoulder the cost for a national crisis and he warned against legislation the Washington City Council considered that would make insurers pay claims by mandating coverage for business losses due to COVID-19, David A. Sampson, president and CEO of the insurance association, said

“Only the federal government can be the bridge for a crisis of this proportion," Sampson said.

Klores said he hopes to get his family-run restaurant up and running soon.

“Instead of calling it a mom-and-pop, I like to call it a father-and-son, it's one location," Klores explained. "We were just on the verge of our expansion plans, things really began to take off ... I'm trying not to get angry. I'm trying to be rational and be productive. But frustration. Absolutely. We're frustrated with this whole situation.”