WEBVTT - Business, Interrupted 0:00:00.600 --> 0:00:05.040 Welcome to Prognosis. I'm Laura Carlson. It's stay two hundred 0:00:05.120 --> 0:00:09.040 and fifty eight since coronavirus was declared a global pandemic. 0:00:10.200 --> 0:00:13.119 Today we have a special edition of the show in 0:00:13.200 --> 0:00:18.680 collaboration with Bloomberg Law posted by David Schultz. Business Interrupted 0:00:18.760 --> 0:00:23.599 is a special investigation podcast. Bloomberg Law reporters examined how 0:00:23.680 --> 0:00:28.360 businesses of every stripe, large and small, assumed they had 0:00:28.440 --> 0:00:31.680 insurance that covered them in the event of a shutdown, 0:00:32.360 --> 0:00:37.440 and how those assumptions were by and large wrong. The 0:00:37.440 --> 0:00:42.320 Bloomberg Law team looked into so called virus exclusion clauses 0:00:42.680 --> 0:00:47.200 that insurers quietly inserted into many of their business policies, 0:00:47.800 --> 0:00:52.519 and how those clauses are now creating major strife between 0:00:52.560 --> 0:00:58.840 insurers and their policy holders. Here's David Schultz with more. 0:01:03.440 --> 0:01:06.640 It's hard to run a business, really hard. And I'm 0:01:06.680 --> 0:01:09.080 not talking about how it's difficult to make stuff or 0:01:09.200 --> 0:01:12.120 then convince someone to exchange their money for your stuff. 0:01:12.640 --> 0:01:15.399 It's hard because there's just so much unforeseeable stuff that 0:01:15.400 --> 0:01:18.240 can happen. A ship bing gets damaged, someone slips and 0:01:18.240 --> 0:01:20.679 falls in your aisle, there's a fire in the place 0:01:20.720 --> 0:01:22.600 next door. All of these are things that can wreak 0:01:22.680 --> 0:01:26.880 havoc on even a successful business. Also, this Broadway has 0:01:26.920 --> 0:01:30.319 extended its shutdown shutdown or shut it down start over 0:01:30.319 --> 0:01:35.440 shutdown plan in New York City. This is why insurance exists. 0:01:35.720 --> 0:01:38.640 It can help mitigate the risk of, say, a worldwide 0:01:38.640 --> 0:01:41.400 pandemic that shuts down Way. It feels like the entire world. 0:01:42.080 --> 0:01:44.279 And there actually is a type of insurance that covers 0:01:44.600 --> 0:01:48.720 this exact type of thing. It's called business interruption insurance. 0:01:48.920 --> 0:01:51.520 And a lot of businesses across the country and the 0:01:51.560 --> 0:01:55.240 world started filing claims on their business interruption policies when 0:01:55.320 --> 0:01:59.400 all this madness began earlier this year. However, the vast 0:01:59.480 --> 0:02:03.880 majority of those claims were denied because years ago, the 0:02:03.920 --> 0:02:07.760 insurance companies quietly inserted clauses into all of their policies 0:02:08.080 --> 0:02:10.520 that said they wouldn't pay out in the event of 0:02:10.560 --> 0:02:15.240 a pandemic. It's almost as though they knew this could happen. Now. 0:02:15.280 --> 0:02:17.760 I'm not saying that insurance companies knew that at the 0:02:17.840 --> 0:02:20.600 end of twenty nine there would be a novel coronavirus 0:02:20.680 --> 0:02:23.680 that originated in China and that it infects humans via 0:02:23.720 --> 0:02:27.400 the respiratory tract. If you're looking for conspiracy theories, you 0:02:27.400 --> 0:02:30.239 have come to the wrong podcast. But right now you 0:02:30.320 --> 0:02:33.840 might be asking yourself, what podcast did I come to? Well, 0:02:33.960 --> 0:02:37.760 you're listening to Business Interrupted from Bloomberg Industry Group, and 0:02:37.800 --> 0:02:40.760 I'm your host, David Schultz. This is a podcast about 0:02:40.760 --> 0:02:44.120 how businesses of every stripe, large, small, you name it, 0:02:44.360 --> 0:02:46.680 assume they had insurance that covered them in the event 0:02:46.720 --> 0:02:49.760 of a shutdown, and how those assumptions were by and 0:02:49.880 --> 0:02:53.920 large wrong. You'll hear from myself, along with Bloomberg reporters 0:02:54.000 --> 0:02:56.880 Lydia Bayout and Evan Weinberger from our corporate desk, and 0:02:56.960 --> 0:02:59.600 David Hood from our tax desk, about what happened to 0:02:59.639 --> 0:03:07.799 those this is why, and what might happen next. So 0:03:07.919 --> 0:03:10.000 back to what I was saying earlier, you might not 0:03:10.080 --> 0:03:13.200 have seen the pandemic coming, but the insurance industry knew 0:03:13.280 --> 0:03:16.200 it might happen. Insurres did their homework and realized it 0:03:16.240 --> 0:03:19.000 was likely there would be a pandemic of some kind 0:03:19.360 --> 0:03:23.240 at some point, that it was in fact foreseeable. They 0:03:23.280 --> 0:03:25.960 paid very close attention to the stars outbreak back in 0:03:26.000 --> 0:03:29.600 the two thousands, and he's becoming more aggressive the number 0:03:29.639 --> 0:03:33.399 of victims expected to triple within weights, and they learned 0:03:33.440 --> 0:03:37.160 lessons that other industries and even many governments didn't. How 0:03:37.160 --> 0:03:39.600 do we know this, It's all in the policies that 0:03:39.640 --> 0:03:43.880 they wrote. Well, most commercial property policies contain what is 0:03:43.960 --> 0:03:48.320 the so called virus exclusion the quote exclusion of last 0:03:48.400 --> 0:03:52.000 due to virus or bacteria unquote. That's Scott Seamen, a 0:03:52.080 --> 0:03:55.240 Chicago based attorney with the firm Hinshaw and Culbertson who 0:03:55.280 --> 0:03:59.040 represents insurers and the commercial property policies. He's talking about 0:03:59.240 --> 0:04:03.440 our insurance held by many, many businesses. It's called business 0:04:03.440 --> 0:04:06.440 interruption insurance, and it's supposed to pay out if something 0:04:06.480 --> 0:04:08.560 out of your control happens and forces your business to 0:04:08.600 --> 0:04:11.400 shut down. It's supposed to replace some or maybe even 0:04:11.440 --> 0:04:14.320 most of the revenue you lost during a shutdown. But, 0:04:14.560 --> 0:04:17.440 as Scott Seaman just said, nearly all of the business 0:04:17.520 --> 0:04:21.400 interruption policies issued by nearly every insurance company, not all, 0:04:21.440 --> 0:04:25.039 but just about all came with a virus exclusion attached. 0:04:25.440 --> 0:04:28.600 This amendment specifically stated that the policy will not pay 0:04:28.600 --> 0:04:31.560 out if a business is shut down due to a pandemic, 0:04:31.920 --> 0:04:35.800 and that's no accident. The introduction of virus exclusions was 0:04:35.839 --> 0:04:39.040 a direct response to the last time a coronavirus threatened 0:04:39.080 --> 0:04:44.960 to infect all of mankind, the Stars epidemic. That epidemic 0:04:45.000 --> 0:04:47.720 caused some shutdowns in a few countries, but even then 0:04:47.760 --> 0:04:51.200 the claims were hefty, including one that reportedly totaled sixteen 0:04:51.200 --> 0:04:54.920 million dollars to an international hotel chain. Insurers saw this, 0:04:55.160 --> 0:04:56.760 it realized how much they'd have to pay out if 0:04:56.760 --> 0:05:00.279 a pandemic caused global shutdowns, and then quickly got to 0:05:00.279 --> 0:05:03.360 work adding these exclusions in. But while the insurers knew 0:05:03.360 --> 0:05:06.719 a global pandemic was possible, if not likely, the business 0:05:06.720 --> 0:05:10.800 owners who purchased their policies did not take Julia Mayor, 0:05:10.960 --> 0:05:13.840 the owner of a cafe and restaurant in Santa Barbara, California, 0:05:14.200 --> 0:05:16.760 She called her insurance broker right after the first COVID 0:05:16.839 --> 0:05:19.520 stay at home owners were issued and at that point 0:05:19.520 --> 0:05:22.960 are broker said, you do not have virus coverage and 0:05:23.000 --> 0:05:26.280 you do not have pandemic coverage, so there will not 0:05:26.440 --> 0:05:30.640 be any ability for you to access your insurance. And 0:05:30.680 --> 0:05:34.720 that was a very big shock for me to hear 0:05:34.760 --> 0:05:37.920 because I didn't expect that at all. I didn't expect 0:05:38.120 --> 0:05:41.760 my question wasn't am I covered? It was more when 0:05:41.800 --> 0:05:44.560 will this coverage kick in? As a result, instead of 0:05:44.640 --> 0:05:47.240 hunkering down and using her insurance money to dread water, 0:05:47.720 --> 0:05:51.479 Julia is barely staying in business and she's not alone. 0:05:51.720 --> 0:05:54.400 Business Owners across the country are getting their business interruption 0:05:54.400 --> 0:05:58.320 claims denied and denied fast, in some cases, within hours 0:05:58.360 --> 0:06:01.560 of filing them. So this might seem like a simple story, right, 0:06:01.600 --> 0:06:04.760 It's just those greedy insurance companies again, happy to collect 0:06:04.760 --> 0:06:07.480 your annual premiums, but always trying to avoid paying out 0:06:07.480 --> 0:06:09.640 a claim. And if you're a business owner like Juliet 0:06:09.640 --> 0:06:12.200 who's had her claim denied, that might be it. But 0:06:12.279 --> 0:06:15.080 the truth is it's actually much more complicated. If you 0:06:15.080 --> 0:06:17.560 start taking around looking at the origins of this virus 0:06:17.560 --> 0:06:20.480 exclusion and why it was even created, you wind up 0:06:20.480 --> 0:06:24.200 with existential questions about what insurance even is and why 0:06:24.200 --> 0:06:29.240 it exists in the first place. And podcast listeners, those 0:06:29.279 --> 0:06:31.720 are the questions we're going to ask, We're gonna look 0:06:31.760 --> 0:06:33.960 at buy So many companies that thought they were covered 0:06:34.000 --> 0:06:37.039 were in fact not what this means for them, and 0:06:37.080 --> 0:06:40.000 why the insurance industry maybe winning the battle but losing 0:06:40.040 --> 0:06:43.720 the war We'll hear from coffee roasters, theater owners, restaurateurs, 0:06:43.960 --> 0:06:48.479 angry politicians, frustrated insurance regulators, the Houston Rockets, and, for 0:06:48.560 --> 0:06:53.000 good measure, Benjamin Franklin. All will be explained. Stay with us, 0:07:04.440 --> 0:07:07.200 those nine justices in Washington that could be pretty hard 0:07:07.200 --> 0:07:09.440 to keep track up. That's where we come in. I'm 0:07:09.520 --> 0:07:13.120 Jordan Reuben and I'm Kimberly Robinson. On our podcast, Cases 0:07:13.120 --> 0:07:15.560 and Controversies, we give you a week by week accounting 0:07:15.720 --> 0:07:18.840 of the Supreme Court, the filings, the arguments, the opinions, 0:07:19.040 --> 0:07:21.800 and much much more. So check in on Fridays with 0:07:21.880 --> 0:07:24.440 Cases and Controversies to find out what's coming up on 0:07:24.480 --> 0:07:28.000 the horizon at the Supreme Court. Download and subscribe wherever 0:07:28.040 --> 0:07:31.280 you get your podcasts. So before we go any further, 0:07:31.400 --> 0:07:32.880 we all have to be on the same page about 0:07:32.920 --> 0:07:35.840 what insurance actually is. This is the point of the 0:07:35.840 --> 0:07:37.480 podcast where I might play a clip from one of 0:07:37.520 --> 0:07:40.320 those old timey nineteen fifties instructional videos at the use 0:07:40.400 --> 0:07:43.520 of showing high school economics class but I'm not going 0:07:43.560 --> 0:07:45.560 to do that. Instead, I'm gonna go all the way 0:07:45.600 --> 0:07:48.280 back to the beginning, back when modern property insurance. As 0:07:48.360 --> 0:07:51.160 we know it today. Was basically first conceived by this guy. 0:07:51.680 --> 0:07:59.160 You may have heard of him, Benjamin Franklin. Yes, that 0:07:59.360 --> 0:08:03.080 Benjamin Glinn. Long before he graced the bill, before he 0:08:03.080 --> 0:08:06.760 even signed the Declaration of Independence, Franklin started the Philadelphia 0:08:06.800 --> 0:08:10.160 Contributorship for the Insurance of Houses from Losses by Fire. 0:08:10.680 --> 0:08:12.440 If they were around today, it would probably be called 0:08:12.440 --> 0:08:15.360 the pc I HLF. But that's neither here nor there. 0:08:15.800 --> 0:08:18.720 Franklin didn't invent insurance, but he did help to invent 0:08:18.760 --> 0:08:22.080 property and casualty insurance, and importantly, or at least importantly 0:08:22.120 --> 0:08:25.440 for the purposes of this podcast, the pc I HLF 0:08:25.920 --> 0:08:28.640 was the first insurance company to inspect properties and issue 0:08:28.680 --> 0:08:31.680 policies based on their risk. If your home was made 0:08:31.720 --> 0:08:34.960 of faulty materials or restore flammable materials in your basement, 0:08:35.280 --> 0:08:38.600 no policy for you. Why was it such a big 0:08:38.640 --> 0:08:41.680 innovation because it allowed the insurer to manage its own risk, 0:08:41.840 --> 0:08:44.079 the risk of having to pay out more in claims 0:08:44.080 --> 0:08:46.839 than it's actually collected. As long as everyone's house doesn't 0:08:46.840 --> 0:08:49.040 catch on fire all at the same time, if you're fine, 0:08:49.440 --> 0:08:52.200 your policy holders pay their premiums. Their houses don't catch 0:08:52.200 --> 0:08:55.280 on fire, so they don't file claims, but when they do, 0:08:55.559 --> 0:08:59.320 you can afford it because you've insured lower risk houses. Hopefully. 0:08:59.440 --> 0:09:01.920 That's a really fundamental principle. And here's another way to 0:09:01.960 --> 0:09:04.520 put it. This is Dani Schwarz, a law professor at 0:09:04.520 --> 0:09:08.000 the University of Minnesota who specializes in insurance. The broad 0:09:08.080 --> 0:09:10.680 principle is one that's been around for for really the 0:09:10.760 --> 0:09:14.800 history of insurance, which is, insurers thrive when they can 0:09:15.520 --> 0:09:18.720 ensure risks that are not correlated with one another. So 0:09:18.800 --> 0:09:21.880 insurers like to find risks that are not correlated, and 0:09:21.920 --> 0:09:23.480 so then that's the question of, okay, well, how do 0:09:23.520 --> 0:09:27.760 you identify correlated risks? And so historically there were exclusions 0:09:27.800 --> 0:09:32.520 for war, there were exclusions for earthquakes, or exclusions for floods, 0:09:32.559 --> 0:09:36.800 lots of events that could simultaneously result in coverage for 0:09:37.120 --> 0:09:42.880 policy holders. That is a really important point. Insurers don't 0:09:42.920 --> 0:09:45.319 want to cover events that could cause all of their 0:09:45.320 --> 0:09:48.440 policy holders defile claims all at the same time. In 0:09:48.440 --> 0:09:51.400 other words, and unforseeable event is okay as long as 0:09:51.400 --> 0:09:54.880 it's both unforeseeable and discreet. But what does that mean 0:09:54.920 --> 0:09:57.800 for small businesses small business owners. Let's say, for example, 0:09:57.840 --> 0:10:00.800 a cafe owner in Santa Barbara, California. They're just trying 0:10:00.840 --> 0:10:02.920 to earn revenue and not go out of business. A 0:10:02.960 --> 0:10:05.560 business insurance policy is something they know they have to get, 0:10:05.920 --> 0:10:08.440 but for most small entrepreneurs it's probably not among the 0:10:08.480 --> 0:10:11.200 top one hundred most important decisions they have to make 0:10:11.240 --> 0:10:14.360 in running their business. However, there are now a whole 0:10:14.400 --> 0:10:16.800 lot of business owners who are really wishing they spent 0:10:16.880 --> 0:10:20.280 more time looking over the insurance policies they assigned years ago. 0:10:20.800 --> 0:10:22.680 And this isn't just a big business thing or a 0:10:22.720 --> 0:10:25.679 small business thing. It's not limited to one industrial sector 0:10:25.880 --> 0:10:28.720 or one part of the country. Celebrity chefs are having 0:10:28.720 --> 0:10:31.960 problems with their insurance. Big clothing retailers are having problems, 0:10:32.240 --> 0:10:35.280 and even the NBA's Houston Rockets filed the lawsuit after 0:10:35.280 --> 0:10:41.560 their business interruption claim was my apologies rejected Bloomberg Laws. 0:10:41.640 --> 0:10:44.480 Lydia b you didn't speak with James Harden, but she 0:10:44.559 --> 0:10:46.400 did speak with a lot of small business owners and 0:10:46.400 --> 0:10:49.160 she says, right now, many feel like they were sold 0:10:49.280 --> 0:10:52.320 a bill of goods. Lydia takes over the story from here. 0:10:52.520 --> 0:10:55.640 Julia Meyer, the cafe owner we heard from earlier, has 0:10:55.720 --> 0:11:00.240 had truly awful luck with her business Interruption Insurance. The 0:11:00.280 --> 0:11:02.800 claim she filed this year after the pandemic shut her 0:11:02.800 --> 0:11:05.640 cafe down wasn't the first time she thought her policy 0:11:05.679 --> 0:11:11.079 would cover her but didn't. Back in, wildfires burned hundreds 0:11:11.120 --> 0:11:14.320 of thousands of acres in and around Santa Barbara, where 0:11:14.320 --> 0:11:18.160 her cafe is located. Huge parts of the southern California 0:11:18.200 --> 0:11:21.120 town were evacuated. So we were watching the fire kind 0:11:21.120 --> 0:11:27.560 of come across our city and they were evacuating block 0:11:27.640 --> 0:11:31.760 by block. Julia actually proactively called her insure before she 0:11:31.800 --> 0:11:34.439 shut down her cafe. Are Insurance said, well, once you're 0:11:34.840 --> 0:11:39.320 once your business falls into a mandatory evacuation, you we 0:11:39.400 --> 0:11:44.040 can talk. And we were one block away from the 0:11:44.040 --> 0:11:49.120 mandatory evacuation. That's the thing that time, Julius policy only 0:11:49.240 --> 0:11:52.120 kicked in if the government forced her business to shut down. 0:11:52.720 --> 0:11:54.840 It didn't matter that she couldn't have kept her cafe 0:11:54.960 --> 0:11:58.120 open anyway. There weren't many customers lining up to eat 0:11:58.120 --> 0:12:01.480 sandwiches and drink coffee with a wild fire looming. The 0:12:01.559 --> 0:12:05.920 policy required a ruling that's called a civil authority. Then, 0:12:06.280 --> 0:12:09.880 less than a month later, heavy rains came and with 0:12:09.920 --> 0:12:14.400 the landscape charred from the fires, mud slides became a problem. 0:12:14.440 --> 0:12:17.600 They are finding many cars. We don't know where those 0:12:17.679 --> 0:12:21.400 vehicles were parked last night, sometime after the rain came, 0:12:21.679 --> 0:12:25.880 mud surrounded them and carried them off. In fact, they 0:12:25.880 --> 0:12:28.800 were so bad they blocked the main highways leading in 0:12:29.000 --> 0:12:33.120 or out of the town. Julia thought, well, if people 0:12:33.160 --> 0:12:36.120 can't access my business because a civil authority shut down 0:12:36.160 --> 0:12:40.240 the roads, maybe that fits the criteria. So she tried 0:12:40.320 --> 0:12:43.720 again and reopened her already denied claim. But no luck. 0:12:43.840 --> 0:12:48.720 That was also denied because again we could get into 0:12:48.800 --> 0:12:53.120 our doors. Ultimately, Julia says she lost two months of 0:12:53.160 --> 0:12:56.000 revenue and survived only thanks to a loan from the 0:12:56.040 --> 0:13:02.720 Federal Small Business Administration. Bonnie Shock is also no stranger 0:13:02.760 --> 0:13:06.240 to how insurance companies work, but that's because it runs 0:13:06.240 --> 0:13:09.160 in her family. My father happened to be UM, an 0:13:09.200 --> 0:13:12.960 insurance underwriter, and I'm married to an insurance adjuster UM, 0:13:13.040 --> 0:13:15.920 so I've been around the industry quite a lot in 0:13:15.960 --> 0:13:19.319 my life. Bonnie runs the Fox Theater, a one thousand, 0:13:19.440 --> 0:13:24.560 one hundred and sixty four seat venue in downtown Tucson, Arizona. Fox, 0:13:26.240 --> 0:13:29.680 Like Julia, Bonnie submitted a business interruption claim after the 0:13:29.720 --> 0:13:34.320 pandemic hit, and like Julia, it was denied and the 0:13:34.320 --> 0:13:37.240 Fox theater actually had an endorsement and its policy that 0:13:37.360 --> 0:13:41.920 covered communicable disease. So our communicable diseases endorsement, one would 0:13:41.960 --> 0:13:45.200 think we would have been paid out on, but in 0:13:45.280 --> 0:13:48.880 fact that it's not the case because um, in that instance, uh, 0:13:49.000 --> 0:13:54.480 the policy requires that there actually be an incidence of 0:13:54.640 --> 0:14:00.160 disease in the space that requires the shutdown. Because this 0:14:00.240 --> 0:14:04.240 is a circumstance where the shutdown is related to the 0:14:04.400 --> 0:14:10.880 possibility and the and the UH avoidance of such a 0:14:11.120 --> 0:14:14.520 of of such an incidence, that that portion of the 0:14:14.559 --> 0:14:16.800 policy and that endorsement did not pay off. So, just 0:14:17.000 --> 0:14:20.600 to drive that point home, Bonnie's claim would have been 0:14:20.600 --> 0:14:23.680 paid out had there been an actual case of COVID 0:14:23.760 --> 0:14:28.640 nineteen at the theater. The policy requires that there actually 0:14:28.720 --> 0:14:33.080 be an incidence of disease. But because the Fox was 0:14:33.120 --> 0:14:38.480 shut down preemptively to prevent the spread, no dice. If 0:14:38.520 --> 0:14:41.080 that claim had been paid at the beginning of the pandemic, 0:14:41.600 --> 0:14:44.320 Bonnie says, the Fox could have avoided a lot of 0:14:44.360 --> 0:14:49.160 the struggles that followed. So, um, we are that very 0:14:49.200 --> 0:14:53.600 particular type of operation that simply cannot operate now, and 0:14:53.640 --> 0:14:58.760 what we're learning, unfortunately, is just how important that coverage, 0:14:59.120 --> 0:15:01.400 that that money could have been, because this is going 0:15:01.440 --> 0:15:07.120 to extend for at least another six months before we 0:15:07.200 --> 0:15:10.120 feel confident or in any kind of confidence whatsoever that 0:15:10.200 --> 0:15:12.360 we would be able to start holding events again and 0:15:12.360 --> 0:15:19.200 actually earning revenue again. Unlike Bonnie Bobby, Stucky didn't have 0:15:19.240 --> 0:15:21.800 a lot of experience with his insurer or the insurance 0:15:21.840 --> 0:15:25.840 industry at large before the pandemic. Stucky is a restaurateur 0:15:25.960 --> 0:15:30.080 who owns four places in Boulder and Denver, Colorado, everything 0:15:30.120 --> 0:15:34.160 from fine dining to fast casual pizza. He says when 0:15:34.160 --> 0:15:37.640 this all started he wasn't really planning for the worst. Well, 0:15:37.680 --> 0:15:40.400 I think when it first arrived, I think all of 0:15:40.480 --> 0:15:42.560 us were a little bit of asleep at the wheel. 0:15:42.880 --> 0:15:44.720 I mean, I think we had you know, my wife 0:15:44.800 --> 0:15:49.560 is naturally a nervous nellie and a worry Warton bought 0:15:49.840 --> 0:15:55.520 mass back in January, bought gloves. But I think we 0:15:55.520 --> 0:15:57.880 were just going through our typical day. And then it 0:15:58.040 --> 0:16:00.720 was funny. I was a guest civilier at an event 0:16:01.480 --> 0:16:04.600 March nine in New York where they had they had 0:16:04.600 --> 0:16:07.840 people from all over the world. There my wife and 0:16:07.880 --> 0:16:10.280 I flew there and she gave me a kit to 0:16:10.440 --> 0:16:13.120 go do wine service that night. She's like, okay, here's 0:16:13.120 --> 0:16:16.440 your parrel for your pocket. I want you to wash. 0:16:16.600 --> 0:16:20.200 You know, like we were hearing about it. But this 0:16:20.280 --> 0:16:22.720 is how fast it crept up on us. Is That 0:16:22.840 --> 0:16:27.480 was March ninth or tenth. By the next week, all 0:16:27.520 --> 0:16:32.080 of America was shutting down very quickly. The gravity of 0:16:32.080 --> 0:16:35.760 what was happening set in, and shortly after that, the 0:16:35.800 --> 0:16:41.360 Governor of Colorado, Jared Polis, issued shutdown orders by acting boldly, 0:16:41.440 --> 0:16:45.480 now we can limit the duration of this economic crisis 0:16:45.560 --> 0:16:48.000 rather and I will. And I literally told my staff 0:16:48.040 --> 0:16:52.080 in all Navite, I said, everyone was stressed out. I said, 0:16:52.120 --> 0:16:54.880 you know what we're gonna be. Okay, I've been paying 0:16:54.880 --> 0:16:58.280 business interruption insurance for fifteen years, that's what this is for. 0:16:59.720 --> 0:17:04.560 I hit send on that the second we get closed 0:17:04.600 --> 0:17:07.359 by the mayor of the governor, and that's exactly what 0:17:07.400 --> 0:17:11.840 Bobby did. We got closed, hit send to Farmers Insurance 0:17:12.520 --> 0:17:15.639 and I've never seen a reply come back that quick 0:17:16.760 --> 0:17:23.640 from an insurance claim saying UH denied. That's an important detail. 0:17:24.440 --> 0:17:27.159 We heard from several business owners who filed claims that 0:17:27.240 --> 0:17:31.560 their claims were denied really really quickly, like within a 0:17:31.600 --> 0:17:35.760 matter of hours. Bobby says he thinks this shows how 0:17:35.800 --> 0:17:39.000 well prepared the insurance industry was for this pandemic. This 0:17:39.040 --> 0:17:41.240 is not my job to be an expert of insurance, 0:17:41.880 --> 0:17:45.960 but I do know that I would have expected at 0:17:46.040 --> 0:17:50.560 least an investigation and maybe an on site visit if 0:17:50.600 --> 0:17:53.960 you were going to give a denial that quick. And 0:17:54.280 --> 0:17:57.760 my gut instinct is when you give a denial that quick, 0:17:58.080 --> 0:18:01.240 because you can't get that community to all the insurance 0:18:01.400 --> 0:18:06.080 employees that quick, that was probably premeditated. That they were 0:18:06.119 --> 0:18:10.320 probably planning this about the time when my wife bought 0:18:10.320 --> 0:18:14.360 the gloves in January. We reached out to Farmers Bobby's insurer. 0:18:15.200 --> 0:18:17.840 In an email from their spokesperson, they didn't comment on 0:18:17.880 --> 0:18:21.280 the speed of their denial, but on Bobby's particular claim. 0:18:21.320 --> 0:18:25.399 They did say, quote, in this circumstance, the claim for 0:18:25.440 --> 0:18:29.359 COVID nineteen related damages, including those resulting from governmental stay 0:18:29.359 --> 0:18:32.119 at home orders, is not covered under the policy and 0:18:32.200 --> 0:18:37.080 is subject to applicable policy exclusions. Unquote. That was Bloomberg 0:18:37.119 --> 0:18:41.720 Law Financial Services reporter Lydia Bayed, So that raises the 0:18:41.840 --> 0:18:44.720 question what exactly was the insurance industry doing in the 0:18:44.760 --> 0:18:47.720 months leading up to the pandemic. In the weeks immediately 0:18:47.760 --> 0:18:50.800 after all this craziness started, it seems like they really 0:18:50.800 --> 0:18:53.000 wanted to make sure they did not have any exposure 0:18:53.000 --> 0:18:55.480 to business interruption claims from stores that were shut down. 0:18:56.000 --> 0:18:59.120 Were these insurers just twirling their bad guy mustaches while 0:18:59.240 --> 0:19:05.719 laughing and count seem their policyholders money. No, No, they 0:19:05.720 --> 0:19:08.440 were not. The truth is it wasn't that the insurance 0:19:08.440 --> 0:19:10.760 industry didn't want to pay off business and eruption claims. 0:19:11.119 --> 0:19:13.640 It was that the insurance felt like they couldn't Blue 0:19:13.680 --> 0:19:16.439 Brook Laws. Evan Weinberger dug deep into the insurance industry 0:19:16.520 --> 0:19:19.120 is thinking here, and he explains what was going on 0:19:19.400 --> 0:19:22.520 this summer. We spoke to Ray Farmer. He's the top 0:19:22.560 --> 0:19:25.760 insurance regulator in South Carolina and the president of the 0:19:25.840 --> 0:19:30.080 National Association of Insurance Commissioners. And Ray got right to 0:19:30.119 --> 0:19:32.480 the point, you know you have an ask, but I'll 0:19:32.480 --> 0:19:36.680 tell you, in my opinion, of pandemic is not insurable. 0:19:36.920 --> 0:19:39.320 That's a line that we heard over and over and 0:19:39.440 --> 0:19:42.639 over and over again when we were reporting out this podcast. 0:19:43.280 --> 0:19:46.600 Insurance can help protect you from some really catastrophic events, 0:19:47.040 --> 0:19:49.720 but a global pandemic just isn't one of them. The 0:19:49.720 --> 0:19:52.440 reason gets back to what Dan Schwartz, the Minnesota law 0:19:52.440 --> 0:19:57.200 professor said earlier, the whole correlated risk thing. David Sampson, 0:19:57.359 --> 0:19:59.879 the head of the American Property casualty insurance is so 0:20:00.119 --> 0:20:03.040 siation breaks it down here. In other words, there are 0:20:03.119 --> 0:20:07.679 just some risks that exists that are not ensurable risks, 0:20:08.560 --> 0:20:13.720 and pandemics are one of those risks that are at 0:20:13.760 --> 0:20:20.200 this point in time, largely uninsurable. The insurance product and 0:20:20.280 --> 0:20:27.000 the insurance industry was never designed and can't design a 0:20:27.040 --> 0:20:32.119 product that will cover the collapse for the shutdown of 0:20:32.160 --> 0:20:38.919 an entire nation's economy all at one time. It's a 0:20:38.920 --> 0:20:41.879 point that gets at some really fundamental questions about what 0:20:41.960 --> 0:20:44.840 insurance actually is and what it can and can't do. 0:20:45.440 --> 0:20:48.400 And make no mistake, if insurers did have to pay 0:20:48.400 --> 0:20:52.080 out all or even most of the business interruption claims 0:20:52.119 --> 0:20:55.639 they've received, it's not an exaggeration to say that lots 0:20:55.680 --> 0:20:59.159 and lots of insurance companies, maybe even most, would go 0:20:59.200 --> 0:21:05.000 out of business. Sampson says the entire insurance industry has 0:21:05.080 --> 0:21:08.160 roughly eight hundred billion dollars in cash to pay any 0:21:08.280 --> 0:21:11.120 and all claims that may arise. But he says industry 0:21:11.200 --> 0:21:15.080 data shows that pandemic related losses for just small companies 0:21:15.359 --> 0:21:18.480 are running at four hundred billion dollars a month. It 0:21:18.480 --> 0:21:21.399 would end up being a solvency event for the industry 0:21:21.960 --> 0:21:25.080 and inhibit the ability of the industry to pay for 0:21:25.560 --> 0:21:30.280 all of the claims that are covered in policies, both 0:21:30.280 --> 0:21:33.560 on commercial policies as well as personal lines policies. It 0:21:33.600 --> 0:21:36.760 would take only a couple of months before all of 0:21:36.800 --> 0:21:40.480 that statutory surplus is exhausted, and then who's going to 0:21:40.560 --> 0:21:45.080 be left to pay planes for uh, you know, tornadoes 0:21:45.400 --> 0:21:48.960 and hurricanement. There's an important point to make here. Some 0:21:49.119 --> 0:21:53.480 insurers did sell policies that covered pandemics. After all, you 0:21:53.480 --> 0:21:57.080 didn't get almost anything insured. Used to be common practice 0:21:57.119 --> 0:22:00.159 for movie stars to ensure their own faces, but the 0:22:00.240 --> 0:22:04.840 question is at what price. Here's an example, you know, Wimbledon, 0:22:05.280 --> 0:22:09.800 that big tennis tournament in England. It's unclear why, but 0:22:09.920 --> 0:22:13.200 ever since the Stars outbreak, the organizers of the tournament 0:22:13.280 --> 0:22:18.400 purchased a business interruption policy that specifically covered pandemics. They 0:22:18.400 --> 0:22:20.840 were covered after this year's tournament had to be canceled, 0:22:21.440 --> 0:22:24.000 but their coverage reportedly came at the cost of nearly 0:22:24.080 --> 0:22:28.040 two million dollars a year every year for almost two 0:22:28.040 --> 0:22:34.880 decades leading up to this year. Rhonda or In, an 0:22:34.880 --> 0:22:38.159 attorney with the firm Anderson Kill who represents policy holders 0:22:38.160 --> 0:22:42.040 and suits against their insurance companies, says, it's irrelevant whether 0:22:42.080 --> 0:22:45.000 a business could have or couldn't have protected itself before 0:22:45.040 --> 0:22:49.280 the pandemic. That's a fundamental misunderstanding of the role insurance 0:22:49.359 --> 0:22:52.640 is supposed to play in society. She says, who steps 0:22:52.800 --> 0:22:59.320 forward in a national crisis of this scale is always 0:22:59.760 --> 0:23:05.760 a capitalist society, a conflict between government and private industry. 0:23:05.920 --> 0:23:10.240 So you have insurance companies that are supposed to step 0:23:10.280 --> 0:23:14.520 forward in a crisis, and it sounds like they're pushing 0:23:14.600 --> 0:23:17.440 back and saying, sorry, this one's too big for us. 0:23:18.440 --> 0:23:20.919 We're gonna step back now. And where this is the 0:23:21.040 --> 0:23:25.760 government's problem. This crisis is too huge for a private 0:23:25.800 --> 0:23:28.600 industry to handle. It has to be handled on the 0:23:28.640 --> 0:23:34.720 government level. That is a deep philosophical conversation, really, And 0:23:34.800 --> 0:23:38.359 she says that would be fine, except the government doesn't 0:23:38.400 --> 0:23:42.440 treat insurance companies like normal companies. For example, they enjoy 0:23:42.560 --> 0:23:46.560 lots of perks from the government, like exemptions from antitrust laws. 0:23:46.680 --> 0:23:50.240 Insurance companies are not supposed to be cutting their lasses 0:23:50.760 --> 0:23:54.040 when there's a crisis. That is the time for them 0:23:54.119 --> 0:23:58.800 to step up and say they're here. It's completely backwards 0:23:59.560 --> 0:24:02.640 for the insurance industry to say, but if we pay, 0:24:02.760 --> 0:24:05.679 these losses will go back for him. Well, I guess 0:24:05.680 --> 0:24:08.200 you didn't do a good risk job with your reserves. 0:24:08.280 --> 0:24:13.000 Then that is your raison debtre that's what you are. 0:24:19.440 --> 0:24:23.720 Congress can and does get involved in regulating insurers, but 0:24:23.840 --> 0:24:26.480 really the lion share of the oversight happens at the 0:24:26.520 --> 0:24:31.000 state level. Mike Krieedler, the top insurance regulator in Washington State, 0:24:31.560 --> 0:24:34.280 says he's not happy with how quickly insures our rejecting 0:24:34.280 --> 0:24:37.919 claims in some cases just hours after they've been filed. 0:24:38.080 --> 0:24:42.880 Became clear that the insurance companies were, in my opinion, 0:24:42.920 --> 0:24:47.000 being somewhat cavalier in their response to their policy holders 0:24:47.680 --> 0:24:51.840 as to whether they had coverage or not. I made 0:24:51.840 --> 0:24:53.960 it very clear. I sent out a notice to all 0:24:54.000 --> 0:24:57.159