Members of Congress Urge Insurers to Cover COVID-19 Business Interruptions

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Published: 03/24/20 10:26 PM

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Members of Congress Urge Insurers to Cover COVID-19 Business Interruptions

This article was published on: 03/24/20 10:26 PM

A bipartisan group of U.S. House members has asked insurers to retroactively recognize financial losses relating to COVID-19 business interruptions under commercial business interruption coverage for policyholders. Eighteen House members made their case in a March 18 letter addressed to the leaders of the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, the Independent Insurance Agents & Brokers of America, and the Council of Insurance Agents and Brokers.

Download the PDF version: Members of Congress Urge Insurers to Cover COVID Business Interruptions.pdf

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In response, the four industry groups said they’re working to provide relief to policyholders but not through the coverage in question. “During times of crisis, we must all work together,” the letter from the congressional representatives states. “We urge you to work with your member companies and brokers to recognize financial loss due to COVID-19 as part of policyholders’ business interruption coverage.” The House members add that they “stand ready and willing to work with you on any future measures that might be necessary to see our country through this trying time.”

Those signing the letters include the following House Democrats: Nydia Velazquez, N.Y.; Andy Kim, N.J. (note: self-quarantined due to contact with someone positive); Grace Napolitano, Calif.; Marc Veasey, Texas; Alcee Hastings, Fla.; Rashida Tlaib, Mich.; Gilbert Cisneros, Calif.; Scott Peters, Calif.; Max Rose, N.Y.; Kathleen Rice, N.Y.; Joe Cunningham, S.C.; and Andy Levin, Mich. The following Republican House members also signed the letter: Brian Fitzpatrick, Pa.; Jim Hagedorn, Minn.; French Hill, Ark.; Rick Crawford, Ark.; Steve Womack, Ark; and Bruce Westerman, Ark.

The letter makes the case that American businesses are “understandably concerned about the potential financial impact the continued global spread of COVID-19 may have on their operations” in the wake of more than 118,000 declared cases of the disease in 114 countries globally, with more than 4,000 people having lost their lives so far. As a result, they argue that including COVID-19 related losses in business interruption coverage is key. “In many commercial property insurance policies, business interruption coverage is triggered when the policyholder sustains ‘direct physical loss of or damage to’ insured property,” the letter notes. “In addition, many commercial property insurance policies provide coverage for business income losses sustained when a civil authority prohibits or impairs access to the policyholder’s premises.”

The members of Congress argue that shelter-in-place orders alone relating to the COVID-19 crisis, such as the one in place for the greater San Francisco Bay Area since March 16 and another under consideration for New York City, should be among the situations counted under that policy language. “These ‘shelter-in-place’ orders and curfews—combined with those individuals who have already chosen to stay in their home over fear of contracting the virus—will no doubt have an economic impact on America’s businesses, particularly its small businesses,” the letter argues. “Many of us have already been hearing from constituent businesses who have been forced to send employees home or shutter their doors due to a loss of economic activity.”

David Sampson, president and chief executive officer of the APCIA, Charles Chamness, president and CEO of NAMIC, Bob Rusbuldt, president and CEO of IIABA and Ken Crerar, president and CEO of CIAB, sent a joint letter to Rep. Velazquez, D-NY, the first signatory and chair of the House Committee on Small Business, in response. “Standard commercial insurance policies offer coverage and protection against a wide range of risks and threats and are vetted and approved by state regulators. Business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19,” they wrote. “The U.S. insurance industry remains committed to our consumers and will ensure that prompt payments are made in instances where coverage exists,” they added.

In their response, the trade group leaders noted that member insurers have been active in charitable efforts in their communities and have begun working with customers to offer flexibility on premium payments. “We recognize the extraordinary challenges our country is facing—our member businesses, our employees, and our families are confronting the same trials,” the trade group letter said, concluding, however, that government action is needed to address growing problems.

“The U.S. is in the midst of a national crisis that will require federal assistance that provides funding directly to those American individuals and businesses most in need. Our organizations stand ready to work with Congress on solutions that provide the necessary relief as soon as possible,” the letter said. Separately, Rep. Velazquez introduced legislation to provide other relief for small businesses during the COVID-19 outbreak. The COVID-19 Relief for Small Businesses Act of 2020 would provide zero interest direct loans to small businesses, direct grants, loan debt relief and would seek to increase access to federal contracting opportunities, among other provisions.

In addition to responding to the letter from Congress, NAMIC worked to oppose legislation proposed in the state of New Jersey that also sought to retroactively cover small businesses for COVID-related interruptions—specifically any business with less than 100 employees in New Jersey with a policy of business interruption insurance in force on March 9, 2020, regardless of whether the policy had a virus exclusion. NAMIC offered a statement strongly opposing N.J. Assembly Bill 3844. “The proposed retroactive application legislation would fundamentally change the agreed upon transfer of prospective risk of loss exposure to coverage for a known and presently occurring loss, something the parties did not agree to, the insurer did not rate for, and the policyholder did not pay for, wrote NAMIC Northeast Regional Vice President Christopher Stark. Stark also pointed out the potential unintended consequence of delaying Small Business Administration loans, as the SBA will likely ask applicants to disclose insurance payments before receiving funds.

Elsewhere, financial analysts have expressed uncertainty about how coverage questions in this areas will play out. “There may be exclusions, but there may very well be different interpretations around those exclusions in the U.S. and elsewhere,” said Stephan Holzberger, chief rating officer of AM Best, announcing an upcoming pandemic stress test for rated companies earlier this week.

A seemingly more damaging assessment for commercial insurers came from the chief executive of an InsurTech, Chris Cheatham of RiskGenius. In a new publication, Cheatham described the possibility that the absence of language explicitly covering communicable disease claims or exclusion clauses in commercial insurance policies will put more carriers on the hook to cover business interruption and other claims. In fact, RiskGenius estimates that roughly 80 percent of commercial insurance policies are “silent” or vulnerable on communicable disease coverage.

In a post on the RiskGenius Insurance Prospectus blog, Cheatham notes that while many attorneys believe other provisions in a Silent COVID policy would exclude coverage, such as the need for physical damage to trigger coverage, his team believes this issue may arise in claims and litigation. “While insurance experts would be correct in asserting that insurance policies silent on communicable diseases traditionally do not cover communicable disease losses, we are focused on what may occur with unexpected court rulings or new laws and regulations,” he wrote in an email newsletter about the blog item. (See related article, “How Silence May Impact Commercial Insurers on COVID Cover“)

In a separate development, a restaurant (Oceana Grill) filed the first lawsuit on a business interruption coverage matter in a civil district court in New Orleans Monday, asking a state judge for a declaratory judgment that its all-risks policy from Lloyd’s of London will cover its damages if ordered to close by civil authorities in response to the coronavirus.

Talk to a TPG Risk Manager regarding a Business Continuity Plan tailored for your business.

Download the PDF version: Members of Congress Urge Insurers to Cover COVID Business Interruptions.pdf