By Thomas K. Pendergast
As San Francisco’s shelter-in-place order is extended through May to avoid a tsunami of new COVID-19 infections, like the Spanish Flu’s second wave that killed millions more people than the first, small businesses are drowning in debt and struggling to stay afloat.
The City’s preliminary estimate on the number of businesses that will likely be either partially or fully impacted by the shelter-in-place order is more than 14,000, possibly resulting in nearly 167,000 lost jobs.
Among the many challenges facing small business owners – like Buffy Maguire, the owner of Java Beach Café – is trying to get insurance companies to pay out for those who carry business interruption insurance.
“I’ve paid into it for more than 27 years and I was denied,” Maguire said. “I was discouraged to even apply and then I was denied. And I just find this completely unacceptable.
“On a bigger scale, what nets do small businesses have in the world if we don’t have these types of insurance? We don’t have pensions, necessarily, we don’t have a lot of resources that other people have when they work for a big company or they work for the City,” she said. “We do things like this: we buy business insurance and we pay into it every month and we budget it, and we include it. We do our due diligence and then a disaster happens and we are denied.
“So, I think the insurance companies owe it to us.”
Doug Marschke runs The Taco Shop at Underdogs. According to the Small Business Resource Guide, his business received $200,000 from the federal Paycheck Protection Program (PPP), so he’s been able to keep his workforce employed for now, but he worries about what he will do when that runs out.
Like Maguire, his claim for business interruption insurance was also turned down.
“As a restaurant owner, we really have two pieces to deal with financially,” Marschke said. “The first is what’s right in front of us. How do we keep our doors open now? How do we protect our staff? How do we keep as many employees employed as we can?
“But it is also the recovery. After this is all over and all the bills are due that we’ve been delaying, how do we pay those bills?”
Insurance companies have been denying these claims because, they say, business interruption insurance only covers property damage that makes running a business impossible, but apparently a deadly virus doesn’t count.
District 4 Supervisor Gordon Mar responded to this situation by pushing a resolution through the Board of Supervisors calling for insurance companies to honor these claims.
“Many of these mom ‘n’ pop businesses and restaurants have been paying into the pockets of these insurance companies for decades,” Mar said in an email statement. “Business interruption insurance was meant for times like these, yet when small businesses are bleeding and suffering great losses, for-profit insurers hit them again with a denial letter.
“They sold these policies, promising to cover businesses when a government deems it necessary to interrupt businesses, to protect the public, and they should pay out for COVID-19 impacts,” he said.
“The ability of the coronavirus to spread between people through these surfaces poses an extreme danger to the public,” Mar continued. “The public health orders that interrupted businesses – essential and non-essential – are necessary to protect the public. Insurance companies should not be allowed to say otherwise as a means of denying coverage.
“We urge the California Insurance Commissioner to make the same determination and not allow profiteers to get away when the rest of us are in crisis.”
Rodney Fong, president and CEO of the San Francisco Chamber of Commerce, also said the insurers should pay up.
“We know that in the past few months many of these claims have been denied, with the technicality of the coronavirus not being connected to a physical loss or damage of that real estate or that physical property,” Fong said. “We know this is not true now. COVID-19 has the ability to stick to materials for three days or more. And so we know that that does have impact on our physical businesses, our physical property.
“Look, we need these businesses to stay afloat. We need employees to hold their jobs for as long as possible,” he said. “We’re not sure how long this is going to go on. We need to encourage our insurance companies to step up and help out these small businesses.”
Meanwhile, others are either adjusting their business model or just shutting down completely.
Kevin Ryan co-owns Green Apple Books, which has been on Clement Street since the 1960s. The business also includes an annex store on Ninth Avenue in the Sunset District. Since shutting his doors and shedding about three-quarters of his payroll by furloughing workers, he has switched over to online sales and kept some managers employed to help him fill orders.
“It’s not enough to replace what we had when we were open, but it’s enough to pay all of them and maybe have a little money to pay the rent,” Ryan said. “We’re not paying the rent in full, but we’re trying to make some good-faith efforts to give a little something to the landlords.”
But, for the most part they are deferring rent payments until they reopen.
“Everybody is going to have to share the pain. Landlords can’t expect to get their rent and banks can’t expect to get their mortgage payments and all the way up the ladder,” he said. “Otherwise, the building is empty, we’re out of business, nobody’s getting any money out of it, and that doesn’t do anybody any good.”
Brian Lew is the co-owner of The Game Parlour on Irving Street.
“We’re trying to meet a need for people, both food-wise and as far as entertainment, people are trying to figure out what to do at home,” Lew said. “So people are able to find board games and card games, and they’ve been super happy about that, They can buy them here and bring them home. That’s what the current business model is.”
They are accepting online food orders and delivery through DoorDash, Grubhub and Postmates, plus their own in-house delivery service.
“People order online, on our website, for board-games or games in general, and we’ll deliver it to their house ourselves at the end of the day.”
Lew said they have applied for PPP money but have heard nothing about it yet, so their current operations will have to suffice for now.
“It will cover our rent,” he said. “That’s the main reason why we want to stay open. And minimal employees; we’re a skeleton crew right now. It’s better than closing and still having to pay rent, right? Making rent and covering the cost of the staff, that’s all I can ask for right now in this situation.”
The Underground Grill Kings restaurant on Noriega Street, however, has closed for now.
“We’re just paying the rent,” owner Danny Mak said. “If we decide to open, we’ll be paying the rent and the electricity and the gas and all that, without having a steady income at least.”
They are not offering take-out service.
“A couple of my friends, they stayed open but they’re telling me that they’re just going to straight-up close it as well; It’s just not worth it,” Mak said. “I have a newborn baby at home. I’m not trying to get infected. It’s a lot to think about.”