Running a small business is incredibly challenging, even under normal circumstances. In the world of restaurants, the work is physically demanding and the hours grueling. The margins are so thin that an unforeseen cost, like a dishwasher breaking, can become a legitimate crisis. After all, the median small business has only about two weeks of cash on hand, according to a study in the journal Proceedings of the National Academy of Sciences.
Now imagine the scale of the crisis when a closure from a global pandemic wipes out over half of your business virtually overnight.
We’ve already seen what can happen in similar situations. Between December 2008 and December 2010, the Great Recession caused an estimated 1.8 million small businesses to shut down, taking 8.7 million jobs with them. But the current public health crisis is ravaging businesses even more swiftly. For example, the National Restaurant Association estimates more than 110,000 restaurants closed across the country in 2020 alone, some 3,600 of them in Massachusetts. Closures have meant hundreds of thousands of jobs furloughed or lost in this state; a dramatic decline in business for local suppliers like bakeries, fishermen, and farmers; a drop in local and state tax revenue; and other devastating ripple effects on communities.
Meanwhile, stimulus funding from various government agencies has been difficult to access or has failed to address the sustained nature of the pandemic. Nor can saving these restaurants depend on the generosity of neighbors eating out, ordering takeout, and buying gift cards, as important as that support is. Without more help, a 2020 estimate showed the Massachusetts restaurant industry could lose over $2 billion.
Something clearly must be done. In September 2020, we joined a legislative advocacy group called THIRST, The Hospitality Industry Re-Imagined Security Trust. The group consists of small-business owners and employees in Massachusetts and across the country, who are calling on other sectors of the economy to step in and assist the industries hardest hit by the pandemic. In particular, we want to see the insurance industry meet its responsibilities.
Before Sam could open his Somerville restaurant, he had to pay for property insurance, equipment breakdown insurance, liability insurance, and workers’ compensation insurance, all of which can add up to tens of thousands of dollars a year. He, like many small-business owners, had to invest in something called business interruption insurance. If his restaurant was unexpectedly forced to close, the insurance was there to help protect against financial losses. For example, THIRST contends, those losses brought on by being forced to close during a pandemic.
Virtually every restaurant in Massachusetts and elsewhere has had its business operations interrupted in some way since last March. But insurers have been aggressively denying claims, saying their insuring agreements were meant to cover interruptions from disasters like fires and floods, not losses from pandemic shutdowns. Similar instances were covered in the past, however. In 2013, for example, insurers for Mandarin Oriental hotels agreed to pay the chain $16 million lost as a result of the SARS outbreak in Asia. (After that, many insurers sought virus-exclusion clauses for their policies, which they’re now attempting to use to deny COVID-19 claims; not all agreements have them.)
Sam and other policyholders have, in turn, argued that it was not the virus that forced their closures — it was state orders. And this should trigger additional coverage common to many policies called “civil authority action.” For policies that have them, it seems clear the civil authority action coverage should kick in.
Still, insurance companies are refusing to pay, even as the Insurance Information Institute estimated they were sitting on a $770 billion surplus in March 2020. And when policyholders go to court to fight for what we believe we are owed — as nearly 1,500 have, according to a litigation-tracking project at University of Pennsylvania law school — most cases are being dismissed. THIRST does not know of a single claim across the country that has been honored without a legal fight. Yet, insurers have the money: Estimates from last spring suggested it would cost $485 billion through the end of 2020 to pay business-income claims for those that purchased the coverage, as people like Sam did.
THIRST is spearheading legal and legislative efforts across the country to have authorities compel insurance companies to fulfill their promises and pay what they owe. As of this writing in mid-February, Massachusetts state Senator Diana DiZoglio and state Representative Dylan Fernandes were preparing to introduce a bill that would require insurance companies to honor legitimate claims around business interruption insurance. The bill is also expected to do away with virus-exclusion clauses as well as introduce other much-needed measures.
In the best of times, the small businesses that thrive have developed a seemingly magical combination of stellar product, committed staff, welcoming atmosphere, and passion for their communities. But in these times — through no fault of their own — even the most dedicated have found themselves having to pivot and pivot again, trying to scrape by amid ever-changing guidance and circumstances. Too many of them have had to close anyway. Additional and focused support from the Massachusetts Legislature — and the insurance industry — is needed if we are to save those that are still hanging on.
Amanda Converse is the CEO of Love Live Local, a small-business advocacy organization on Cape Cod. Sam Treadway is the owner of backbar in Somerville. Both are involved with THIRST’s organizing efforts in Massachusetts (thirstgroup.org). Send comments to email@example.com.