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Insurance should help businesses damaged during unrest, but merchants question whether it will be enough

Chicago Tribune logo Chicago Tribune 6/2/2020 By Alexia Elejalde-Ruiz, Chicago Tribune
a kitchen with a table in a restaurant: The interior of the damaged Z Smoke Shop in Chicago's Humboldt Park neighborhood on June 2, 2020. © Chris Sweda/Chicago Tribune/Chicago Tribune/TNS The interior of the damaged Z Smoke Shop in Chicago's Humboldt Park neighborhood on June 2, 2020.

The looters who on Sunday ransacked Z Smoke Shop, which has been selling glass pipes and vaping products in Logan Square for eight years, left behind not only major damage but also empty shelves that could take weeks to fill.

“We will be closed for a good while,” said manager Kyle Korab. “There isn’t one piece of glass that isn’t broke.”

The business called its insurance company immediately. Now it’s waiting, nervously, to see if its claim is approved.

“We’re not 100% sure,” Korab said. “They might find a reason to not cover it.”

Most standard commercial property insurance policies cover riots and civil commotions. That coverage typically includes not only physical property damage but also income losses when businesses can’t operate as a result — including when access to the business is restricted by civil authorities because of damage to neighboring properties.

After facing criticism for denying income loss claims from businesses forced to close because of COVID-19, insurers are unlikely to fight claims related to the widespread unrest in response to the death in Minneapolis of George Floyd, said Everett Cygal, an attorney with Chicago-based Schiff Hardin who represents insurers.

On Tuesday, Mayor Lori Lightfoot said the city would push insurers to pay claims immediately.

“No red tape, no bureaucracy, get your agents out in these neighborhoods and start cutting checks,” she said during a news conference. “These businesses desperately need the monies to which they are entitled.”

The city also plans to announce a relief fund from public and private philanthropic resources to help businesses recover, Lightfoot said.

Hundreds of Chicago and suburban businesses large and small have been damaged in the fallout from the death of Floyd, a black man who died after a white Minneapolis police officer kept kneeling on his neck even as Floyd gasped that he couldn’t breathe. With access to downtown restricted since Sunday, protestors of police brutality spread into the neighborhoods, and some vandals and looters plundered businesses.

By a long shot, the costliest event of civil unrest in recent U.S. history were the 1992 Rodney King riots in Los Angeles, which resulted in $1.4 billion in losses in current dollars, according to the Insurance Information Institute. The 1968 Chicago riots caused $97 million in losses, adjusted for inflation.

Experts say it is too early to estimate the cost of the damage or predict if the events will cause business insurance premiums to increase in cities that were hotbeds of unrest, like Chicago. The average cost of a business owners policy, which combines property, liability and business interruption insurance, is $1,200 per year, according to the Insurance Information Institute.

a sign above a store: Exterior of the damaged Madrid Jewelry in Chicago's Humboldt Park neighborhood on June 2, 2020. © Chris Sweda/Chicago Tribune/Chicago Tribune/TNS Exterior of the damaged Madrid Jewelry in Chicago's Humboldt Park neighborhood on June 2, 2020.

“Some of the impacted businesses may not have insurance,” Scott Holeman, spokesman for the organization, said in an email. “Some businesses may choose not to file a claim if their deductible is higher than damage sustained.”

Most businesses should have insurance because their landlords or mortgage lenders require it, Cygal said. The challenge for small businesses will be high deductibles or coverage caps that may not address the extent of the damage.

“It won’t be a coverage issue, but whether they purchased enough,” Cygal said.

One survey by an insurance valuation provider found 75% of U.S. businesses are underinsured by 40% or more. A survey by Next Insurance of 30,000 small businesses open at least a year found 44% had never been insured.

Businesses that believe their insurer is not honoring their policy should submit a complaint to the Illinois Department of Insurance website, the agency said.

Korab at Z Smoke Shop said he suspected the business would be targeted because he saw people scoping it out. Video taken by a passerby of the looting, and posted on YouTube, shows people running in and out of the store, some to waiting cars, gripping armloads of merchandise. One guy in a car yells for someone to “grab me a pack of Swishers.”

The biggest challenge, Korab said, is the “time we will be losing” as the shop works to rebuild during a tense period when it’s unclear when it will be safe to reopen.

“Me personally, I’m for standing up for what you believe,” he said. “Protesting is cool, but now you’re going into people’s livelihoods?”

Jaime Madrid, whose family has owned Madrid Jewelry in Humboldt Park for 20 years, said he feels lucky that he stopped by the store Sunday afternoon to put the valuables in a safe.

Moments after he pulled away, the neighborhood erupted in violence, and his store was destroyed. Tenants who live in apartments above the store called him to say they were scared.

When he returned the next morning, “first it felt like a dream because this is so crazy,” he said. “You can’t believe people can do something like that. It’s madness.”

His parents had experienced a similar situation at their jewelry store in El Salvador, but this was a first since the family moved to the U.S.

Madrid has insurance, which softens the financial blow. But he said “material things come and go” and are not the most important thing.

“I felt bad, but not for my stuff, believe me,” he said. “I feel really sad for [the looters] because I don’t know how they are going to feel after this, their conscience. One of the things I think is that they are not going to really enjoy whatever they got from the stores. They were stealing everything. But they were also dropping everything. I found shoes inside my store. We don’t sell shoes.”

Madrid said his faith has allowed him to stay calm through the destruction of his business, which he hopes to reopen when things settle down.

“Mentally and physically we are fine, and that is the most important part of the recovery," he said.”

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