The Dance Theater of Harlem, for example, quickly filed a claim, arguing that New York’s shutdown of “nonessential” businesses had halted the company’s revenue stream. There could be no after-school ballet classes, no cross-country tour for its dance company and certainly no 50th-anniversary gala with tickets starting at $1,500.
In Brooklyn, a small experimental performance venue called Jack reported its losses to its insurance company. In Arizona, the Fox Tucson Theater did the same.
Each organization had coverage for business interruption, which is designed to replace lost income in cases where their building has been damaged or a civil authority has shut down the surrounding area. But within days or weeks, all of the claims they filed had been denied, they said.
“When we submitted our payments to them, we believed we were being protected,” said Anna Glass, executive director of the Dance Theater of Harlem. “It was disheartening to realize that we weren’t.”
Businesses across the country are filing insurance claims for losses related to the pandemic. But the claims filed by arts groups, from movie theaters to concert halls, have become a particularly intense battleground, in part because the virus ended a primary source of revenue — ticket sales — and in part because so many were financially vulnerable before the crisis hit.
In response, insurance companies have issued denials, prompting lawsuits across the country and legislative efforts on the state and federal levels to force insurers to make payments. The insurance industry argues that its policies were not designed to provide this kind of coverage in the first place and that fulfilling all of these requests would bankrupt the industry.
“I can see a tidal wave of these lawsuits coming,” said Kevin Sullivan, a client executive at National Trust Insurance Services, “and insurance companies are going to fight like hell.”
It’s difficult to fully measure the extent of insurance denials, but industry leaders have maintained that the standard policy does not cover losses caused by a pandemic. Some basic policies stipulate further that losses caused by viruses and bacteria are excluded from coverage, meaning immediate denial of coronavirus-related claims would be likely.
Experts say that organizations and businesses with policies that contain specific language covering communicable diseases, which include the American Museum of Natural History, may have an easier road to getting their claims approved.
But those organizations appear to be the exception. More prevalent are cases where insurance companies are pointing to a handful of words in many standard policies as the grounds on which to deny claims.
The words, in the text of many 100-plus-page insurance policies, say that businesses must have suffered a “direct physical loss or damage” to be eligible for payment. This type of coverage tends to be activated after events like hurricanes, wildfires or water-main breaks.
The question that courts will have to consider: Does a microscopic virus have the power to inflict a “physical” loss?
A group started by celebrity chefs — including Wolfgang Puck and Thomas Keller of the French Laundry restaurant in the Napa Valley — have been at the forefront of legal challenges aiming to convince judges that the coronavirus is indeed inflicting a physical loss on their businesses. A lawsuit filed against the insurers of Keller’s restaurants notes that the coronavirus “physically infects” and lingers on surfaces and other materials.
The chefs, calling themselves the Business Interruption Group, are said to have the president’s ear. In late March, Puck, Keller and others made their case in a phone call with President Donald Trump, said John Houghtaling, a lawyer who represents them. Trump later said in a news conference that, although some insurance policies specifically exclude virus coverage, in a lot of cases, he said he “would like to see the insurance companies pay if they need to pay.”
Trump bemoaned the fact that there were restaurateurs who had paid insurance premiums for decades and were getting denied.
“When they finally need it, the insurance company says, ‘We’re not going to give it,’” he said. “We can’t let that happen.”
For Broadway productions that shut down in March, the argument for business interruption insurance tends to be simpler. Policies tailored for theatrical productions typically do not require physical losses, said Peter Shoemaker, a managing director at DeWitt Stern, an insurance brokerage that works with Broadway shows.
Some shows have already received advance payments from insurance companies, Shoemaker said, and he anticipates that the Broadway productions represented will have their insurance claims approved. An initial insurance check for one of these shows could be more than $1 million, he said.
Calculating the payout to a Broadway show can be complex. The amount would depend on its continuing expenses and the estimated profit it would make under normal circumstances. In the Broadway world, that profit week by week is determined by all sorts of unknowns: tourism levels, advertising campaigns, critical accolades, word-of-mouth reviews — and everything is taken into account.
Brick-and-mortar theaters are finding it more difficult to get their claims approved because they often make their money by renting out space to productions, which means they must fulfill the “physical loss” requirement.
Some organizations have filed claims under separate event or performance cancellation insurance that may result in a smaller check from the insurance company. The Chocolate Factory Theater in Queens is hoping to receive coverage for the cancellation of its annual food festival. Similarly, Dance Theater of Harlem believes it is eligible to receive up to $30,000 in all for performances that were canceled along with its gala.
Even within the same cultural niche, not all arts organizations followed the same playbook. Carnegie Hall, for example, has filed a business interruption claim, while the Metropolitan Opera does not even have such a policy, calling it “prohibitively expensive.”
Movie theaters are also filing business interruption insurance claims, a spokesman for the National Association of Theater Owners said, but none have reported receiving a payout.
If insurance claims are approved, the insurer will typically cover all profits that the business is estimated to have made during normal times, plus any continuing expenses that the business must pay while it is shut down. Policies usually include a cap on how much an insurer will pay out and can range from under $100,000 for a smaller organization to millions of dollars for a larger one.
Outside accountants make the assessments on the reimbursements based on the earnings of previous years and other factors.
Insurers have been plain-spoken in suggesting that the reimbursements being sought now were never intended under the language of the standard policies.
In an earnings call last month for Chubb, a common insurer for arts organizations, the company’s chief executive, Evan Greenberg, said business interruption insurance “doesn’t cover COVID-19.” He predicted, though, that lawyers would try to “torture the language” contained in standard policies “to twist the intent.”
“The industry will fight this tooth and nail,” he said. “We will pay what we owe.”
Last week, a Chubb client — the Simon Wiesenthal Center in Los Angeles — sued the insurer, accusing it of shirking its contractual duty by refusing to cover losses generated by the pandemic.
The center’s educational arm, called the Museum of Tolerance, and its filmmaking arm, said Rabbi Marvin Hier, the center’s chief executive, had to shut down. Its film editors weren’t able to enter their office building to finish an upcoming documentary for Netflix.
Hier called Greenberg’s comments a “big disappointment.”
“You can’t build a reputation on what you’re going to do and then, when a national disaster comes, you try to run away,” Hier said.
Chubb said it does not comment on specific cases but that it was “paying claims for covered losses fairly and promptly” during the pandemic, including for business interruption claims where viruses or pandemics were expressly included in the policy.
“We are doing all we can to help our customers at this time,” the company said in a statement.
Battling insurance denials in court is too expensive for some arts organizations, said Alec Duffy, the founder of Jack, a 50-seat performance venue in the Clinton Hill neighborhood of Brooklyn. He began pushing instead for legislation to make it easier for small New York businesses and nonprofits to receive insurance payouts during the pandemic.
In response, Assemblyman Robert C. Carroll, a lawyer with a theater background, introduced legislation in late March to broaden business interruption insurance so that current policy holders would qualify to receive reimbursements for losses from the current coronavirus pandemic. Legislators in several other states, including New Jersey and Pennsylvania, have introduced similar bills.
“If we don’t do something for these small businesses and these theater companies,” Carroll said, “we’re going to lose them all.”
On the federal level, some House Democrats have supported the notion of forcing insurance companies to pay out to businesses who have reported income loss because of coronavirus. Another proposal would create a federal fund to help companies make business interruption insurance payments in future pandemics, leaving insurers in the clear for now.
Insurers as well as Republican lawmakers are arguing strenuously against any proposal that would put insurance companies on the hook for a surge of claims during the current pandemic.
“This is not something that ought to be foisted upon a private sector industry that never agreed to cover this,” said Damon N. Vocke, a lawyer who represents insurance companies. “It would bankrupt the industry.”