As the coronavirus pandemic has decimated small businesses across the country, shell-shocked owners have turned to their insurance carriers to cover devastating financial losses thrust on them by state shutdown orders.

In many cases, the response from insurers has been: We don’t cover viruses.

Tacoma dentist Arnell Prato was among those who got that answer. That drove him to join a growing number of small-business owners locally and nationally who are suing their insurers, alleging breach of contract after paying their premiums for years.

“I’ve never seen or experienced anything like this,” said Prato, who has practiced dentistry in Washington for 10 years.

He is now in the middle of a battle pitting people like him against a powerful industry that insists it is sympathetic to the plight of small-business owners, but not legally on the hook for hundreds of billions of dollars in losses that were never anticipated to be covered under a catastrophic economic standstill.

“Pandemic outbreaks are uninsured because they are uninsurable,” David Sampson, president of the American Property Casualty Insurance Association, recently said.

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If insurers are forced to pay, it could wipe out their ability to cover home and auto policies in the future, say industry officials, who favor turning to Congress for a financial remedy.

Knowing the damage a pandemic could wreak on businesses, insurers excluded coverage

Prato, who calls dentistry his passion, was forced to shut down March 19 under a directive from Gov. Jay Inslee that soon expanded into the governor’s stay-at-home edict to curb the spread of the coronavirus.

“It was like a flip of the light switch. Our business stopped overnight,” said Prato, whose practice was deemed nonessential under the governor’s order.

As a result, 28 employees at Down to Earth Dental were furloughed. The office donated its protective gear to the local medical community.

Prato’s lawsuit is among 14 filed as of late last week by attorneys at Seattle’s Keller Rohrback law firm, who say they are talking to other potential clients. The suits, naming various insurance companies, were brought on behalf of small businesses ranging from dentists to a print shop to restaurant owners.

“Number one, a lot of these policies don’t say at all that they exclude for virus,” Ian Birk, one of the attorneys, said of the insurance companies. “Number two, what they cover is what the policy says they cover, not what they wish retroactively they could cover or not cover because of its financial consequences.”

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Business owners pay for protection against sudden interruptions of cash flow, Birk said.

“There’s not any kind of big exception that says ‘except when it’s a really big deal and is going to cost a lot of money,’ ” he added.

Birk and co-counsel Amy Williams-Derry are asking that the suits be granted class-action status, covering a broad swath of businesses affected the same way or similarly. If approved, that could significantly boost the compensation and damages being sought on behalf of the individual plaintiffs.

A spokesman for Prato’s insurance carrier, Sentinel Insurance, an affiliate of The Hartford Financial Services, declined comment, referring questions to the insurance association. A spokeswoman for the association said she could not comment on individual lawsuits but could provide “general industry insights.”

Those included a statement from Sampson, the association president, saying that insurers are voluntarily providing more than $8 billion in new discounts and refunds for policy holders, expanding flexible payment solutions for businesses and suspending premium billing for small businesses such as restaurants and bars.

“Business interruption insurance policies do not typically cover losses related to viruses. Only the federal government can be the bridge for a crisis of this proportion,” Sampson said, adding that the industry supports federal assistance programs.

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Insurers also joined a broad business coalition calling for a recovery fund that would provide immediate financial assistance to impaired businesses to help them survive, reopen, and retain and rehire employees.

They are also encouraging policy makers to develop safety standards that will help business owners manage the uncertainty of reopening.

Insurers are also going on the offensive, rhetorically. “Threats of lawsuit abuse exploiting this crisis with litigation profiteering will stop America’s recovery before it even starts,” Sampson said.

As Congress considers further legislative proposals, a group representing state insurance commissioners cautioned against proposals that would require insurers to retroactively pay business interruption claims insurance policies do not currently cover.

Those policies were generally not designed or priced to provide coverage against communicable diseases, such as COVID-19, the illness caused by the virus, and therefore include exclusions for that risk, said the statement from the National Association of Insurance Commissioners.

“Insurance works well and remains affordable when a relatively small number of claims are spread across a broader group, and therefore it is not typically well suited for a global pandemic where virtually every policyholder suffers significant losses at the same time for an extended period,” they said.

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University of Washington law professor Jane Winn said the plaintiffs face an uphill battle because pandemics are not specifically included in business interruption coverage, the way a fire or fallen tree would be. “Insurance policies only pay out if a named peril occurs. … Businesses have these policies to cover the known risks of being in business.” In the future, Winn says, companies or the government may offer some kind of pandemic insurance — at an increased cost.

While the Keller Rohrback lawyers representing the small businesses say the litigation could take a long time to work its way through the court system, a judge could rule early on as to whether the losses are covered under one of the policies. Such a ruling could apply broadly to a large number of business interruption policies.

At this point all Prato, the Tacoma dentist, can do is wait.

“I don’t know when or how we’ll be able to get back to business,” Prato said, citing a need to acquire new protective gear and infection-control devices, along with winning the “confidence of both our employees and our patients.”

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