COVID-19

Businesses, insurers want federal backstop to interruption insurance

Kimberly Adams Sep 11, 2020
Heard on: Marketplace
HTML EMBED:
COPY
A Century 21 department store in lower Manhattan on Sept. 10. The company blamed its insurers for its bankruptcy. Spencer Platt/Getty Images
COVID-19

Businesses, insurers want federal backstop to interruption insurance

Kimberly Adams Sep 11, 2020
A Century 21 department store in lower Manhattan on Sept. 10. The company blamed its insurers for its bankruptcy. Spencer Platt/Getty Images
HTML EMBED:
COPY

Brick-and-mortar retailers are fighting for survival in this pandemic economy, and some just aren’t making it.

On Thursday, Century 21 Stores, a clothing chain mostly in the Northeast, filed for Chapter 11 bankruptcy. The company said the pandemic played a role, but it also blamed its insurance company.

Century 21 didn’t mince words, saying its insurers had “turned their backs on us at this most critical time.” The company says that despite having business interruption insurance, when business was interrupted due to COVID-19, claims weren’t paid out.

In this case, like many others around the country, insurers say they don’t have to. 

“The insurance industry charges for a policy based on the risks,” said Loretta Worters, vice president of media relations at the Insurance Information Institute, which represents the industry. “Now, because it’s a pandemic, it was never taken into the the rates when an insurance company provided that kind of coverage. So if you’re not paying for that, imagine the amount of loss the insurance industry would pay.”

In court fights all over the country, the industry is pointing to clauses and exclusions in contracts arguing the industry isn’t obligated to, nor can afford to, absorb the pandemic losses.

In the meantime, business owners are wondering what use their insurance is. 

“And then you’ll also see a lot of folks are getting renewal notices for their policies for next year, and a lot of them, their rates are going up,” said Davis Senseman, a lawyer working with the small business advocacy group Main Street Alliance. “In some cases to 300%,” Senseman said. “So it’s understandable that small business owners are saying, ‘Wait a minute, if the industry didn’t pay out because of these exclusions, why are the rates going up?'”

Both insurance companies and business organizations are lobbying Congress for a fix. Leon Buck, vice president of government relations, banking and financial services at the National Retail Federation, said insurers need a federal backstop, using the program developed after 9/11 as a model.

“What it speaks to is if there’s another terrorism event, than the insurance companies will cover a portion and the federal government will cover the majority of the costs,” Buck said. “And that’s key, because after 9/11, no one was able to get insurance.”

Century 21 noted that its insurers did help it recoup losses in New York after 9/11, but the pandemic was the crisis it could not survive.

COVID-19 Economy FAQs

Are people still waiting for unemployment payments?

Yes. There is no way to know exactly how many people have been waiting for months and are still not getting unemployment, because states do not have a good system in place for tracking that kind of data, according to Andrew Stettner of The Century Foundation. But by his own calculations, only about 60% of people who have applied for benefits are currently receiving them. That means there are millions still waiting. Read more here on what they are doing about it.

Are we going to see another wave of grocery store shortages?

Well, public health officials are warning that we could see a second wave of the virus before the end of the year. And this time retailers want to be prepared if there’s high demand for certain products. But they can’t rely totally on predictive modeling. People’s shopping habits have ebbed and flowed depending on the state of COVID-19 cases or lockdowns. So, grocers are going to have to trust their guts.

What’s going to happen to retailers, especially with the holiday shopping season approaching?

A report out Tuesday from the accounting consultancy BDO USA said 29 big retailers filed for bankruptcy protection through August. And if bankruptcies continue at that pace, the number could rival the bankruptcies of 2010, after the Great Recession. For retailers, the last three months of this year will be even more critical than usual for their survival as they look for some hope around the holidays.

Read More

Collapse

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.

There’s a LOT to celebrate!

It’s National Pumpkin Spice Day, the last day of our fall fundraiser, and thousands of fans like you have invested in Marketplace.

You inspire us, and your support makes us stronger, especially now.