Behind the Concerted Effort Not to Save America’s Restaurants

Restaurant are dying at a record rate—but insurance companies won’t bail them out

In the early days of the pandemic, Rosa Thurnher did what every restaurant owner did and leaned into the impossibility of the circumstance: She learned basic code and pivoted to takeout, applied for grants and a Paycheck Protection Program loan for her Mexican restaurant, El Ponce in Atlanta. She signed up to turn out $10 meals for charity to give hours to her cooks, held fundraisers, and sourced personal protective equipment and takeout boxes. “It was a full-time job just attending all the webinars I did,” she remembers, almost fondly. “First-world problems, right?”

Most restaurant people have similar stories: Boston taqueria owner John Schall and Oregon restaurant manager Katy Connors launched campaigns to limit delivery app commissions while sourcing gloves and masks and to-go boxes and reading books to their toddlers. D.C. bar owner Josh Saltzman applied for a PPP loan and founded an alternative delivery service from his part-time home base in Tanzania. The three-Michelin-star restaurant group Alinea had the staff of its upstart reservation app Tock work 18-hour days to add online ordering capabilities to its platform so the restaurants on its site could “pivot to takeout” without paying the 30% commissions charged by delivery apps. And, perhaps most famously, celebrity chef José Andrés launched a program that would eventually contract thousands of independent restaurants across the country to produce to-go meals for sick and unemployed people in their respective communities. Restaurant people live for urgency, and suffused with it, they overhauled their menus, designed meal kits, branded face masks, experimented with grocery programs, and sold gift cards and sent the proceeds to undocumented workers who couldn’t qualify for unemployment.

Eight months later, the odds are better that an 85-year-old nursing home resident survives this pandemic than an independent restaurant, and just about everyone in the small restaurant business feels just about that vigorous and empowered. A hundred thousand restaurants so far have closed permanently, and of those that remain in New York City, 88% couldn’t pay their October rent. Plus, dozens of state and local governments are shutting down or radically curtailing indoor dining just as temperatures plummet. Business during the last week of November was down about 60% from last year—though it’s hard to find a big restaurant town where the plunge isn’t more along the lines of 80%.

For Thurnher, it feels surreal that her best shot for a relief check likely hinges on a Democratic-controlled Congress and the long-shot chance of a double Democratic victory in a runoff election in Georgia of all places. “On the one hand, of course, it’s amazing that it’s even a possibility,” she says. “On the other, it’s scary it would come down to that.”

The trouble is, not bailing out America’s restaurants — or put another way, forcing them to shut down their dining rooms with no compensation even while blanketing the aerospace and aviation, health care, and defense contracting industries with hundreds of billions of dollars in virtually strings-free bailout funds — was a political act. Although some restaurant owners might be familiar, even beloved, television personalities, they have close to zero national-scale political clout.

In March, a group of high-profile media-darling chefs, including Tom Colicchio and Marcus Samuelsson, founded the Independent Restaurant Coalition to fill the advocacy vacuum. However, they relied mostly on pro bono operatives and the mysterious Democratic dark money slush fund Sixteen Thirty to do their lobbying for them, and the results have been underwhelming. In October, the House finally voted to fund a $120 billion restaurant relief program, but only after bundling it with another $2.1 trillion in funding for schools, states, nursing homes, landlords and mortgage servicers, health insurers, $1,200 and $2,400 stimulus checks and $600-a-week unemployment supplements for the dead-on-arrival HEROES Act 2.0.

Eight months later, the odds are better that an 85-year-old nursing home resident survives this pandemic than an independent restaurant.

The Senate’s standalone restaurant relief bill, meanwhile, has 49 co-sponsors, 13 of whom are Republican, but it has no chance of making it out of Chuck Grassley’s finance committee. Virtually every restaurant advocate with whom I’ve spoken variously cites Mitch McConnell and “conservative Republicans” as the forces sabotaging small restaurants. Certainly, the GOP seems deeply committed to tanking the economy in order to win back the House in 2022. But Democrats have hardly done better, especially given that red-state restaurants have fared far better than blue-state ones throughout the pandemic.

If anything, the restaurants’ biggest foe is arguably the insurance lobby. It is barely mentioned anymore, but a vast number of the bars and restaurants on the brink of ruin right now bought insurance policies to protect themselves from just such a calamity. It’s called “business interruption” or “business income” coverage, and it’s a requirement of most big-city commercial leases. The policies differ substantially, but the industry’s response to claims has been suspiciously uniform: “Sorry, we don’t cover pandemics.”

A March 11 white paper written by attorneys at the prominent insurance industry defense firm Zelle laid out the blueprint for what would soon emerge as an across-the-board, industry-wide blanket denial of Covid-19-related business interruption claims. The insurance exclusively covers losses related to physical property damage, and most policies contain virus exclusions anyway; those two facts supersede any claims that arise from supplemental “civil authority” insurance that would cover an interruption caused by “an order of civil or military authority.” These talking points became quickly ubiquitous, says insurance claim consultant David Princeton, who remembers waking up one morning in March to a chorus of “insurance geek” LinkedIn posts and blog entries constituting what he calls a “coordinated insurance industry disinformation campaign.” Adds Kansas pizzeria owner Adam Peyton with a bemused laugh: “I have three different restaurants with three different insurance policies, and they all used the same language to deny me coverage.”

The restaurants’ biggest foe is arguably the insurance lobby. … A vast number of the bars and restaurants on the brink of ruin right now bought insurance policies to protect themselves from just such a calamity.

The restaurants had one important figure in their corner: flamboyant New Orleans trial lawyer John Houghtaling, who owns 17 Ferraris, is married to Russian pop star wife Julia Timonina, and lives in a literal palace in which his daughter sleeps on a bed that once belonged to Marie Antoinette. Houghtaling is best known for uncovering a conspiracy in the aftermath of Hurricane Sandy whereby engineering reports were doctored to appraise destroyed properties to attribute damages to causes other than the storm. It was a scheme that denied coverage to thousands of homeowners — a particularly egregious act given that flood insurance claims have been fully paid by the federal government since 1968.

The industry’s Covid-19 strategy was a simpler scheme because it didn’t involve any individual assessments that would need to be altered. It was also a longer shot because each policy was different, and more than half by that point did have virus exclusions that various insurers had inserted into boilerplate contracts after the industry paid out at least $64 million in claims to Hong Kong hotels whose occupancy had plunged during the 2003 SARS epidemic.

Houghtaling found plenty of holes in the arguments. Many of the virus exceptions were dubious, he says, and as many as a third made no mention whatsoever of the term. Extensive research suggested that the virus could linger on surfaces for weeks, arguably meeting even the insurance industry’s narrow definition of “physical damage or loss.” Many of his personal friends were chefs who had bought pricer “all risk” policies that contained no exclusions whatsoever, and some businesses had even invested in policies that explicitly covered “pandemic events” in order to “fill in the gaps that [other insurers] creatively exclude or do not address.” In a lawsuit filed against Lloyd’s of London, one Houston restaurant chain claimed that it paid the insurer $40,000 for $1 million in “pandemic event” insurance only to be advised on March 18 that Covid-19 was “not covered under the Pandemic Event Endorsement as it is not a named disease on that endorsement.”

The trouble was, each policy was legally its own special snowflake. Fighting just one could take years to move through the courts, and in the meantime, every chef Houghtaling represented could lose everything. He and a few celebrity chef friends, including Thomas Keller and Wolfgang Puck, began lobbying for federal legislation that would seek to incentivize insurance companies to pay the claims by offering taxpayer assistance to any insurance company that did so voluntarily — a backdoor bailout essentially. A Brooklyn liquor importer named Nate Whitehouse started a partner coalition called the THIRST Group to organize underemployed bartenders to push for similar legislation on a state level. By April, they had gotten the verbal support of the president himself, who told reporters he would like to see “the insurance companies pay if they need to pay, if it’s fair.” The insurers responded by circulating an “analysis” juxtaposing the cost of covering all Covid-19-related “closure losses” for businesses with fewer than 500 employees at somewhere between $393 billion and $668 billion per month with the insurance industry’s total surplus reserves of “roughly $800 billion.”

“I have three different restaurants with three different insurance policies, and they all used the same language to deny me coverage.”

Houghtaling was blown away. “The Titanic is sinking, and the industry is saying, ‘We may not have enough lifeboats, so we’re not gonna drop any of them,” he told a podcast in May. “It’s just morally wrong.” For Whitehouse, the Brooklyn liquor importer and a former compliance attorney at Goldman Sachs during the last economic crisis, it felt like a sadistic sequel to the $192 billion backdoor bailout of mega-insurer AIG that sent $17 billion straight to Goldman and the clients for whom it had purchased underpriced bond insurance on toxic mortgage securities on the eve of the subprime crash.

“We know from very recent history that insurance companies are explicitly too big to fail,” says Whitehouse. “Everyone who works for an insurance company will be fine. What we’ve effectively decided then as a political system, as a society, is that hundreds of thousands of bankruptcies are better than six or seven. We’ve decided that it’s okay that there’s an ever-growing population of the country that in an ever-expanding set of circumstances just gets no downside risk protection, even if they paid for it.”

With each passing month, it has become clearer, however, how little has changed since the AIG bailout. The insurance industry is, by and large, raking in record profits. The 827 registered lobbyists it employs in Washington alone have been hard at work all pandemic to help craft a multi-trillion-dollar federal rescue package that has some problematic parts. It would earmark hundreds of billions of dollars in grants for nursing homes and hospitals and $60 billion for airlines with virtually no official mandate that either industry has to curtail its services or dramatically alter operations in favor of public health; it proposes dozens of liability protections for institutions that may have neglected that duty; and there’s even a scheme that would have given every laid-off worker free COBRA despite the conspicuous existence of two well-known government-run health insurance programs that could have done the same job far more cheaply.

Twelve insurance industry lobbyists converged over the summer to eighty-six a bill Houghtaling backed that would have used taxpayer funds to reward insurers that paid their business interruption claims. Over the spring and summer, Whitehouse’s group ultimately helped convince state senators in 10 states to introduce bills that would have forced insurers to pay certain claims, but “everywhere we showed up, like a dozen insurance industry lobbyists would come out of the woodwork,” he says. None of the bills made it to the floor.

Elsewhere in the world, the Chinese government launched its own state-sponsored pandemic insurance program, and the German government elected to pay 70% of business interruption costs while forcing insurers to pay an additional 15%. The predominant French business interruption insurer agreed to pay business interruption claims for restaurants, and the U.K. Financial Conduct Authority sued eight major insurers to force the industry to at least respond to the claims in an orderly and transparent fashion. Meanwhile, American restaurants set up tables on sidewalks and hoped for the best. Most got enough funds to cover a few weeks through the PPP program, but the requirement to spend all the money within eight weeks of obtaining it even as restaurants were still shut down — which wasn’t relaxed until June — forced most restaurants to blow the money paying busboys and dishwashers to “work from home” before they were even allowed to open.

“What we’ve effectively decided then as a political system, as a society, is that hundreds of thousands of bankruptcies are better than six or seven.”

And so instead of relief, small restaurants got a late summer punctuated by periodic outbreaks and shutdowns that gave way to a second wave of shutdowns; hourly confrontations with customers who refused to wear masks; a weird disembodied mixture of pity and rage when an unhinged subculture of business owners began showing up at protests organized by right-wing Covid-19 denialists; and blame for an outbreak that infected 185 in East Lansing, Michigan. There was also blame for as many as eight in 10 new infections by the estimate of a study led by Stanford computer scientists, who advised that restaurants could lower their “superspreader” likelihood by limiting their seating to 20% of normal occupancy — which would, the study’s authors added (rather dubiously given the documented plunge that OpenTable reports in restaurant covers in cities like New York that have curtailed their capacity back to 25%) only reduce the number of total visits to any establishment by 41%.

“I just pray someone shuts us down,” says Atlanta restaurant owner Thurnher. “Please, shut me down for six to eight weeks. Let’s get this under control because I can’t take another year of just limping along like this, trying to keep a polite smile on my face while pleading with every third customer to please put on a mask.”

senior fellow at the American Economic Liberties Project, co-founder of Jezebel, former Wall Street Journal reporter, off-again waitress, mommy

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