At last count, Oregon had over 360,000 small businesses, according to state estimates, many of which have shuttered or seen their profits drastically drop as the coronavirus pandemic spreads. 

And many were counting on their insurance policies to see them through. But an investigation by Portland Monthly shows that any relief could be a long time coming, if it shows up at all, unless lawmakers step in to intervene.

Emma Mcilroy, owner of the Portland-headquartered brand Wildfang, with two additional stores in Los Angeles and New York City, had to close her businesses this week and lay off 15 employees after losing 70 percent of her revenue stream. She contacted her lawyer for help filing her loss of business claim with her insurance company, and that’s when she learned about the clause briefly referenced on page 7 of her policy, and not explained in detail until 120 pages later:

″[There is] a broad exclusion of loss due to virus or bacteria which applies to all coverages provided by your Commercial Property insurance, including (if any) property damage and business income coverage.”

Later in her policy comes the real blow: The lack of coverage applies even if the closure is due to “civil authority” — in other words, even when the governor has declared a state of emergency and required businesses deemed non-essential to close.

“I was utterly devastated,” says Mcilroy. “I’m not an expert in insurance, but when I bought ‘Business Interruption insurance,’ I assumed it would cover government-mandated shutdowns and global pandemics.”

Many, many other businesses have similar policies, though they may just be finding that out now.

“We are working really hard with our clients to help them understand their coverage, its limitations and advocating on their behalf,” says Lyndsey Kooistra, the vice president of Portland’s LaPorte Insurance Company, which works with many small businesses in the Portland area.  “We are discussing strategies to help their businesses survive through these uncertain times. Most policies specifically exclude exposure to viruses, bacteria, or pollutants. Another question that has come up is in regards to governmental action or civil authority coverage. Again, coverage here is triggered by physical damage to the property by a covered cause of loss with the same exclusions for virus and bacteria. We are closely monitoring any changes or extensions of coverage.”

Jonathan Hardin, a partner at Perkins Coie law firm that works with both start-ups and well-established companies helping them navigate their claims says the policies were updated to exclude coverage for virus and bacteria related outbreaks after other modern pandemics.

“So when you have disease-related events from the past that caused insurers to have to pay out claims, then when they go to write policies for the future, they start to put an exclusions that prevent them from having to repair those types of claims again,” Hardin says. “And then what they do is offer another product that they can charge extra money for if you want to purchase it to carve that coverage back into the policy.”

Most small business owners in the United States wouldn’t even think to look for coverage of virus and bacteria-related events, Hardin says. “They might be thinking about terrorism in some parts of the country, certainly people were after 9/11,” he says.  “But you know, we just didn’t see this even with SARS and H1N1, both of which happened over a decade ago. We did not see this big of a spread and big of an impact outside of Asia.”

Instead, Hardin says, smaller businesses—many of which weren’t yet running during previous pandemics—are more likely to purchase off-the-shelf standard form policies, not knowing those come with the virus exclusion already built in. Only larger, more deep-pocketed companies, he says, have the bandwidth to negotiate for tailored coverage that includes losses stemming from viral epidemics. 

Hard hit small business like Mcilroy’s should immediately file their claims, despite the possibility of denial, he says, given the possibility that legislatures may consider business interruption insurance relief as part of their coronavirus aid packages.

“It doesn’t hurt to file a claim even if even if it’s going to be met with a swift denial because you don’t want to be in a situation where you failed to provide notice,” Hardin says.  “Then there’s a legislative [fix] six months down the road, but then the insurance company says well you didn’t file a claim, it’s too late.”

Insurance law is governed at a state level rather than a federal, so it is up to each state individually to potentially intervene legislatively but it is not yet clear if such legislation will be proposed in Oregon. 

“That specific question has not come up yet. I’ve not heard of a specific clause that is an exception for virus or bacteria,” says Katie Morrison, Legislative Director for Oregon State Sen. Kathleen Taylor, who chairs the Senate Committee on Labor and Business. “I can see that this would be very important moving forward. I’m going to look into it.”

In New Jersey, a state that has been particularly hit hard with coronavirus cases, lawmakers had proposed Assembly Bill 3844, which would’ve required insurance companies to override virus exclusions and fulfill business interruption claims. It was scheduled to go to the floor for a vote on Monday, March 16^, but was pulled from the schedule right before the vote according to NJ Biz. Its status is now unknown.

On March 18, Oceana Grill, a restaurant in New Orlean’s French Quarter filed suit with what legal news service publication Law360 says, “was the opening salvo in an expected wave of litigation over the applicability of civil authority coverage during the pandemic, given the proliferation of federal, state and local orders across the country requiring businesses to close or sharply limit their operations.” 

During a March 19 press conference, Portland Monthly asked Governor Brown about the virus exclusion policy rejections. She said she had only learned of it yesterday and has asked her economic advisory council to include it in their action discussions. “I’ve seen other states have taken legislative action and we might as well,” she noted we have a special legislative session in two weeks focusing on the impact of the pandemic which might be a time to address this issue. “My heart goes out to the small business...They are the heart and lifeblood of our state.”