Gephardt: Insurance Companies Not Paying Business Interruption Claims

SOUTH JORDAN, Utah — Many businesses have an insurance policy that specifically covers business interruption, but as one South Jordan man found out, insurance companies are not paying business interruption claims tied to the coronavirus.

At Cycle Bar in South Jordan, no one is pedaling. Unless you count co-owner Jay Smith who’s pedaling like crazy to avoid going out of business.

Smith had hope that he would be OK — after all, he has business insurance, and a specific clause that covers “business interruption.”

But when Smith filed a claim, it was immediately denied, the insurance company citing “coronavirus did not cause property damage.”

Smith said he was frustrated.

“We’ve been paying these premiums all along and so why shouldn’t they [pay the claim?],” said Smith.

Smith’s insurance does not cover losses experienced by a virus or pandemic.

KSL’s investigation found he’s not alone.

We reached out to Utah Insurance Commissioner Todd Kiser, who said around the time of the SARS outbreak in 2002-2003, insurance companies started being more careful with their policy wording about business interruption.

“There has to be a triggering event,” said Kiser, “something in time that happens a moment there is a direct, physical, specific loss associated with the claim.”

Kiser said the county forcing businesses to close does not count as a physical event.

Two weeks ago, a bill was introduced in Congress that would force insurance companies to cover pandemics, but Kiser warned that forcing insurance companies to pay claims on the coronavirus pandemic would cost about $350 billion per month, and cause some insurance companies to go belly up.

Kiser argued insurance companies did not underwrite for pandemic losses, and to be made to pay them would also affect policyholders for other types of claims.

“What ultimately could happen is that you have a fire on your home, your car drives into someone else’s car, and they sue you for hundreds of thousands of dollars for medical damages,” he said. “There could be solvency issues related to the insurance company’s ability to pay for the claims that they promised to pay because this pandemic exposure was so great.”

As for Cycle Bar’s solvency, Smith said he was unable to get government funding from the various pandemic programs, and is now dealing with real consequences for his business.

“We’ve kept two full time employees we’re going to have to cut at this point,” he said.

Our investigation found that some businesses across the country are suing their insurance companies for denying business interruption claims.

We reached out to Smith’s insurance company, The Hartford, for comment on his claim. They had no comment.

Have you experienced something you think just isn’t right? The KSL Investigators want to help. Submit your tip at investigates@ksl.com or 385-707-6153 so we can get working for you.