Senate committee ponders: Should insurers have to pay business interruption claims caused by pandemic?

Bayoh tells Menendez, who chairs it: I was shocked insurance didn’t cover losses from COVID

Prominent New Jersey restaurateur and businesswoman Adenah Bayoh had strong words about the insurance industry when she testified Thursday at a U.S. Senate subcommittee hearing chaired by New Jersey’s Sen. Bob Menendez.

Bayoh is the founder and CEO of Adenah Bayoh and Cos., the parent corporation of IHOP franchises in Paterson, Irvington and Newark as well as her own restaurant chain, Cornbread, and a real estate development portfolio with hundreds of millions of dollars in urban redevelopment projects.

She told the subcommittee she was stunned by what happened at the beginning of the pandemic.

“Despite all of my hard-earned successes, everything came crashing down in March of last year, when restaurants were among the first businesses to shut down,” she said.

Bayoh said she had business interruption insurance with Chubb and Liberty Mutual that was supposed to cover 12 months of actual loss of business income if something ever happened to her business — but, she quickly learned that viruses and pandemics were excluded from many insurance policies.

“I was shocked to find that my insurance coverage was not there for me when I needed help the most,” she said. “This harsh reality soon set in. I began trying desperately to figure out how to cover my financial obligations and, most importantly, how to take care of the people who rely on me to feed their families.”

Bayoh’s testimony, given virtually, can be seen here.

Menendez (D-N.J.) said the subcommittee on securities, insurance and investment is looking into solutions.

The hearing Thursday was entitled “Examining Frameworks to Address Future Pandemic Risk.” Its goal was to hear testimony from a group of experts, business leaders and insurance providers to explore whether Congress should consider a pandemic risk insurance program to limit the economic damage of future global catastrophic events such as the COVID-19 pandemic.

Bayoh’s experience was not unusual. In fact, it was the norm.

According to the National Association of Insurance Commissioners, of the 8 million businesses with commercial insurance policies that included business interruption coverage, 83% also included a clause excluding claims from viral contamination, disease or pandemic, leading to 82% of claims being closed without payment.

As a result of this, 84% of New Jersey small business owners had to apply to the Paycheck Protection Program and 58% applied for Economic Injury Disaster Loans.

“This pandemic unleashed havoc throughout our economy,” Menendez said. “Across the country, businesses suffered massive losses as a result of stay-at-home orders and other containment measures necessary to slow the spread of COVID-19. During the height of the pandemic, 74% of all small businesses reported falling revenues from the previous week, and small business ownership dropped by 22%.

“In a state like New Jersey that was particularly hard hit at the onset of this crisis, 92% of small businesses experienced revenue losses and 41% temporarily closed. These losses were particularly concentrated in minority communities and in certain industries, such as restaurants and leisure and hospitality.”

Other witnesses at today’s hearing included Evan Greenberg, CEO of Chubb; Robert Hartwig, director of the University of South Carolina’s Center for Risk and Uncertainty Management and a clinical associate professor who studies the insurance industry; Charles Landgraf, senior counsel at Arnold & Porter, who has over three decades of experience in insurance legislative initiatives and brings vast technical expertise to the discussion; and Martin South, president of Marsh US and Canada.

Menendez said he aims to keep the conversation going.

“A robust debate on this topic has already begun in the business and insurance communities,” he said. “We must determine the extent to which businesses, private insurance providers and the federal government are able to share the risk of losses due to a pandemic.

“We will also examine a number of pandemic risk insurance proposals and frameworks put forward by business coalitions and the insurance industry in the wake of this crisis. Each presents different ideas on how much risk is borne by the private sector versus the federal government, and the approach to paying claims.”

The full subcommittee hearing can be watched here.