Barbara Snowden dreamed of opening a wig shop to help women who’d lost their hair during chemotherapy feel better as they battled cancer. In November, she beamed at the grand opening of Hair Goals Club in the Houston suburb of Humble, Texas.

But four months later, her dream died when local officials ordered all non-essential services closed to combat the spread of coronavirus. Snowden had paid for insurance covering unexpected losses, but a quick answer came back on her claim: Nope. Like so many other small business owners in America, she was told her policy didn’t cover disruptions from a pandemic.

“I cried like a baby because I couldn’t believe it,” Snowden said. “That insurance was my last line of defense.”

Now it’s part of a legal fight that may reach every state over who should pay for the steep revenue losses from the deadly Covid-19 virus. Snowden is among a dozen business owners -- including celebrity chefs, Native American casino operators, restaurant chains, a scuba-diving shop and a movie theater operator -- who sued insurers for refusing to honor policies.

They’re the first of what legal experts predict will be widespread litigation brought by policy holders. Companies big and small have been forced to figure out how to pay bills with no money coming in for weeks or months. While the government pledged help with loans and financial aid, it may not be enough for many businesses to survive.

Huge Stakes
The stakes also are huge for insurers. They say business-interruption policies, many of which specifically exclude pandemics, were only intended for physical damage and were never priced to cover a virus outbreak. Industry groups also oppose some states trying to require payments to small firms even if virus losses were excluded.

Companies with 100 employees or fewer could see business continuity losses of as much as $431 billion a month, the American Property Casualty Insurance Association estimated without breaking down how much would be insured costs. That’s nine times more than the $47 billion the industry said it paid for covered losses from the 9/11 terrorist attacks, when only a third of claims were for business interruption, according to the Insurance Information Institute.

“They wouldn’t offer some of these contracts if they were required to cover pandemics,” said Benjamin Collier, an assistant professor in the risk, insurance and healthcare management department at Temple University’s Fox School of Business. “They wouldn’t offer business interruption insurance at all, or in cases where they might be willing to, they would charge substantially different rates.”

Virus Exclusions
While business-interruption policies cover the cost of closing due to everything from fires to tornado damage to burst pipes, the industry often has exclusions to avoid massive payouts all at once from a single event like a war or pandemic. After the SARS outbreak in 2003, some insurers added specific exclusions for losses from viruses and communicable diseases.

The legal battle will be fought state by state -- each with its own insurance laws -- which may mean different outcomes.

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