All of us in business understand the basic economies of insurance.  Risk is analyzed and spread over a wide statistical base.  If that model holds, the insured gets paid upon a legitimate claim and the house odds make the insurance company money.  We have also seen how that model collapses when an event hits a large population of insureds, like a devastating wildfire or an earthquake.

 

A children’s clothing boutique in San Francisco is about to start an avalanche that threatens to bury countless insurance underwriters, including the giants.  They have initiated a class action suit against Travelers Insurance for their failure to pay on business interruption insurance claims stemming from the shutdown of businesses resulting from the COVID-19 pandemic.  This hasn’t just impacted a town or a region, it has impacted the entire country.  Estimates are that combined claims for business interruption across the country could top $430,000,000,000 a month.  No insurance actuary ever built that probability into their model.

 

The basis for this retailer’s claim is simple: this is what they faithfully paid their business interruption insurance premiums for.  It’s really not any more complicated than that. 

 

One has to wonder what the insurance company lawyers are planning in response.  Will they in turn sue Federal, State and local government for mandating the shutdown?  Which begs the question: could this be the ultimate government bailout?

 

We are all getting weary of the statement that “we are in unprecedented times” but it is certainly true here.  Watch attentively – we are making history.

 

If you or your clients are feeling unsure about their options or strategy going forward with respect to their business real estate, feel free to reach out to me for some complimentary guidance at (213) 258-6921.