As the shutdowns of the Covid-19 pandemic have taught, utilities in troubled Jackson, Mississippi, who lost water service this month, are finding that their business interruption insurance policies don’t always pay for lost customers and lost revenue.
“Most coverage is being denied, from what I understand,” said Pat Fontaine, executive director of the Mississippi Hospitality and Restaurant Association.
Restaurants in the state capital have had to temporarily close their doors or shell out hundreds or thousands of dollars a day for customers to provide bottled water, ice, portable toilets and other emergency measures, he said. The crisis. In addition to worsening restaurant woes, water problems have also increased the cost of serving and serving dishes to customers, including labor shortages, supply chain issues and inflation, Fontaine said.
Incessant rains caused the nearby Pearl River to flood parts of the city on August 29. Although not widespread, the muddy water exacerbated long-standing problems at one of Jackson’s two water treatment plants, shutting off service to most of Jackson’s 160,000 residents, officials said.
Water pressure was restored to most of the area by Tuesday, Sept. 6, but residents and businesses remained under a boil water advisory for the foreseeable future, according to news reports.
The water crisis has hit the food service industry particularly hard. Derek Emerson, co-owner of Walkers Drive-In, one of Jackson’s oldest and most popular restaurants, told a local television station that the water problems are “making it impossible for us to do business in Jackson, Mississippi.”
Others remained open, but with fewer customers.
“The numbers are pretty low for lunch,” John Thier, owner of Johnny T’s Bistro and Blues, told The Associated Press. Perhaps they are moving their business to an area where water is not a problem.
Another entrepreneur, Bobby Fairley, owns Magic Hands Hair Design on the city’s south side.
One day last week, she canceled five appointments because her client’s hair required high water pressure to treat it. She should buy water with shampoo hair to make it fit and on any appointment she can. She is losing money when customers are not coming in.
“It’s a huge burden,” she told the AP. “I can’t afford this. I can’t afford this at all.
Despite purchasing business interruption insurance, many business owners are finding that their policies have left them underwater.
The Mississippi Department of Insurance reported that it fielded a few inquiries from businesses about the issue, and determined that most policies would not cover the loss. As courts across the country have ruled in Covid-closure cases, most business interruption policies have been interpreted to require direct physical injury to the premises.
“Business interruption should be the reason for the covered loss to be covered,” said Andy Case, director of consumer services for the Mississippi Department of Insurance, in a statement. “Under a commercial policy, this means there must be physical damage to the business to cause a covered loss.”
Case points out that in most cases of Covid-induced business interruption, it has been determined that there was no physical injury to the business as a result of the shutdown.
“In our water crisis, there is no physical damage to these businesses/buildings,” he said.
Some policies carry coverage for loss of utilities, but most require physical damage to the utility company’s property from a covered peril, such as a storm. Floods are usually not covered, says Timothy McClendon, a Texas-based insurance expert who has been in the business since 1972.
Fontaine said some Jackson businesses see a glimmer of hope there — investigations into the state and federal water fiasco recognize that the storm surge that caused the river to flood could be blamed for the damage to the utility.
News reports indicate that Jackson’s water crisis has been building for more than two decades. The city has seen its share of white flight to the suburbs, and city officials say Jackson doesn’t have the tax base to make a billion-dollar system upgrade. Over the years, lack of funds has been an obstacle to maintenance and repairs.
That’s bad news for Jackson businesses hoping to get insurance relief. Most utility-loss grants specifically “exclude losses from repair, damage and neglect (all well-documented sources of water problems in Jackson),” said Case, the consumer service official.
Lawsuits against insurers who deny claims may bring little resolution, if the Covid-19 claims dispute is any indication. The University of Pennsylvania School of Law’s tracking service shows that 87% of the hundreds of Covid-related business disruptions around the country have resulted in layoffs. Most of the cases were interpreted as submerging policies containing virus exclusions or requiring a physical loss to the property to trigger coverage. Courts have held that viruses do not damage premises in most cases.
Although legal thinking may be evolving. A recent paper in the law journal “Tort, Trial & Insurance Practice” argues that for decades insurance policies have distinguished “physical loss” from physical damage and can include loss of use due to contamination of property. . Several recent Covid court decisions have gotten that wrong, according to the paper’s authors, one of whom is Charles Miller, an attorney at the California Insurance Law Center.
Therefore, unless business interruption policies contain a virus or epidemic exclusion, they should be “interpreted to provide coverage,” the attorneys wrote. Perhaps the same argument could be applied to the business policies of Jackson’s restaurants, where the loss of water service does not have a specific exclusion.
Maybe a few Jackson offices will sue their insurers with that in mind. But Fontaine said some are more likely to sue another defendant, which directly contributed to the water service shutdown.
“There has been some discussion about suing the city of Jackson to help recover some of the blame,” he said.
Top photo: John Thierry, owner of Johnny T’s Bistro and Blues in Jackson, Miss. (AP Photo/Rogelio V. Solis)
