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How to Fight Denials of Business Interruption Claims


By now, most restaurant operators with business interruption insurance have heard bad tidings from their brokers: forget about getting coverage for your claims. 

But Nancy Sher Cohen in Los Angeles, who leads Lathrop GPM's Insurance Recovery & Counseling team, calls that fake news. "Do not give up," she said, despite those denial letters citing exclusion clauses for pandemics. "This is a unique and first-time experience, so provisions in contracts will be litigated. There are many arguments that can be made."

Sher Cohen, who specializes in representing policyholders, knows about unique cases. She represented the institutional lender holding the mortgages for the World Trade Center towers 1, 2, 4 and 5 after the 9/11 attacks.

John Holland, an attorney with Dady & Gardner in Minneapolis who represents franchisees, advises operators to pull their insurance policies and read them carefully, or have their lawyer do so.

 "It's not light reading by any means," he said. "The specific language of your policy will affect your ability to file a claim."

While the policy might exclude a virus as a coverable claim for property damage, for example, "you may have a business interruption policy that specifically references a shutdown by civil authority," as is happening nationwide.

He said operators shouldn't necessarily be put off by fears of time-consuming litigation. "The reality is most cases that get filed get resolved long before a trial," and many times a letter exchange or phone call can result in resolution. "I don't have the view that it's pointless by any means, exploring this."

Chef Thomas Keller, of French Laundry fame, became the most high-profile restaurateur to sue over his claim denial, filing against Hartford Fire Insurance Co. in Superior Court in California the week of March 23. Others have followed, including Scratch Restaurants LLC suing Farmers in California and Onion Tavern Group suing Society Insurance in Illinois. The famous Billy Goat Tavern in Chicago sued, too, seeking class-action status for similarly situated claimants.

Claims will be in the "many billions of dollars, if not trillions," Ben Lenhart of law firm Covington told the Wall Street Journal in early April, and insurance carriers are starting to mobilize.

On March 31, for example, over 30 policyholder groups and the major insurance trade association requested creation of a federal recovery fund to compensate businesses hard-hit by COVID-19, according to Washington, D.C.-based law firm Crowell & Moring, meaning they're seeking risk-sharing from the feds.

That same week, a letter to members of California's congressional delegation from insurer organizations said insurance "cannot account for a situation in which losses are catastrophic and nearly universal." Meanwhile, at least three state legislatures, including Louisiana, Pennsylvania and New York, were discussing proposals to compel insurers to pay for business interruption claims.

Robert Zarco, a Miami-based attorney well-known for suing franchisors in high-profile lawsuits on behalf of franchisees, is now targeting insurance carriers.

He circulated a letter in late March offering Zarco, Einhorn, Salkowski & Brito's services to fight such denials on a 30 percent contingency basis, meaning clients don't pay unless he wins, with a "small upfront fee" that he wouldn't specify.

He believes he can mount arguments that could force insurers to pay those claims, "at a time when they need it most." 

"Mostly the clients I'm getting are multi-unit operators, I'm getting hotels, auto dealerships, a lot of the bigger players, that are losing hundreds of thousands of dollars. I have received in the last five days, 150 calls," he said in late March. "I'm going to take the bull by the horns while everybody's moping and groping."

Sher Cohen, the Los Angeles attorney, outlined a couple of promising arguments she and fellow Lathrop GPM attorneys will use to counteract denials of claims.

First, carriers are asking policyholders to prove a case of coronavirus shut down their restaurant, but that is impossible given the lack of testing. "So, under those circumstances, we believe that the insurers should presume that there was coverage, that there was property damage." Her firm is commissioning modeling studies of the coronavirus spread that she believes will shore up the argument.

Second, after the SARS outbreak in 2006, many carriers added a virus exclusion to their policies, which in many cases contradicts existing pollution and other clauses. 

"If the policy as a whole is ambiguous in any way," she said, "then the courts are allowed to interpret the contract in a way that's against the drafter of the contract, and here that's the carrier."

Her advice to policyholders: No. 1, "give notice to carriers that you will be filing a claim. Do not be discouraged by your broker telling you there's no coverage."

No. 2: "You need to involve counsel, because a lot of these arguments depend upon some legal analysis and are not easily made by a restaurant."

No. 3, in her considerable experience, 'no' is not an acceptable answer. "We are inundated with requests, particularly in the restaurant arena," she said. "We are working seven days a week, what feels like 24 hours a day, responding to requests from carriers for more information, dealing with the clients who had no hope, who we're trying to give some hope to."





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About This Blog

The latest news, opinions and commentary on what's happening in the franchise arena that could affect your business.

Laura MichaelsLaura Michaels is editor of Franchise Times. She can be reached at 612.767.3210, or send story ideas to lmichaels@franchisetimes.com.
Beth EwenBeth Ewen is senior editor of Franchise Times. She can be reached at 612.767.3212, or send story ideas to bewen@franchisetimes.com.
Nicholas UptonNicholas Upton is restaurants editor at Franchise Times. He can be reached at 612.767.3226, or send story ideas to nupton@franchisetimes.com.
Mary Jo LarsonMary Jo Larson is the publisher of Franchise Times Magazine and the Restaurant Finance Monitor.  You can find her on Twitter at




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