As the coronavirus pandemic upends the restaurant industry, insurers are denying restaurant companies’ claims for payouts that could help their businesses survive. 

States across the country have mandated that eateries only serve their food via takeout, delivery or drive-thru lanes to slow the spread of the coronavirus. Some restaurants have chosen to shutter temporarily for the safety of their employees and customers, while others have tried to adapt. Restaurant transactions plunged 41% in the week ended April 5, compared to a year ago, according to the NPD Group.

Restauranteurs, like many other business owners, thought that the situation would be covered by business interruption insurance, which covers the loss of income suffered by a business after a disaster. But following the SARS outbreak, regulators approved an exception in such policies for viruses and bacterial outbreaks.

Fred Castellucci, chief executive of the Atlanta-based Castellucci Restaurant Group, said that his insurer denied his claim because his policy included an exception for virus outbreaks. 

“My frustration with insurance companies is that they’re essentially in business to take your money, make money off of your money and then never pay you out when you have an issue,” Castellucci said.

Even when an exception is not spelled out in the policy, insurers are denying claims using the argument that the virus does not constitute physical damage to the property.

But political pressure is mounting on insurers to reverse course. 

Following calls from industry groups like the recently formed Independent Restaurant Coalition, California Rep. Mike Thompson unveiled a bill on Tuesday that would nullify virus exclusions and force insurers to pay pandemic business interruption claims. Similar bills have been introduced in several state legislatures, including that of New York, South Carolina and Ohio. New Jersey’s bill was withdrawn before it could reach the state Senate.

President Donald Trump has signaled that he believes that business interruption policies without specific pandemic exceptions should cover claims related to the coronavirus pandemic.

“I would like to see the insurance companies pay if they need to pay, if it’s fair. And they know what’s fair. And I know what’s fair,” Trump told reporters on Tuesday during his daily coronavirus task force briefing.

The American Property Casualty Insurance Association said in a statement that pandemic outbreaks are “uninsurable.” The lobbying group for the insurance industry estimates that losses for businesses with 100 employees or less are now as high as $431 billion, dwarfing annual premiums of $71 billion.

Some restaurateurs, including celebrity chef Thomas Keller, are hoping that the courts will resolve the issue, even if lawmakers do not. Keller, who recently joined the White House’s economic revival industry group, is suing his insurer, arguing that his restaurant company should receive a payout because his policy does not have a pandemic exclusion.

Skip Durocher, an attorney with Dorsey & Whitney who represents policy holders in such disputes, said that even a fast court decision could take more than a year. The pandemic, which has closed many courts, is slowing down the already sluggish legal system. 

Still, payouts from business interruption insurance policies will likely fall short of the actual losses to the business.

Darden Restaurants executives said in March that the situation is covered by its business interruption insurance policy, which has a coverage limit of $10 million. The Olive Garden parent, which raked in $8.5 billion in sales in fiscal 2019, said that its same-store sales have plunged 39% during the first six weeks of its fiscal fourth quarter.

Castellucci said that he’ll be looking at alternatives to traditional insurance after this experience. 

“At a certain point, when you get to a certain level of success, you should self-insure,” he said. 

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