In a recent article, Insurance Information Institute (Triple-I) CEO Sean Kevelighan affirmed that insurance companies are prioritizing efforts and resources to make sure all policyholders know about the coverage they have and need in this challenging COVID-19 environment.
Here are a few highlights from Kevelighan’s piece:
Explaining how pandemics are uninsurable is a crucial part of insurers’ mission to make people more prepared, resilient, and informed. “Unlike covered events, which are limited in time and geography, pandemics simultaneously affect everybody. This is something we’ve explained in briefings to legislators, legal experts and consumer and trade media.”
There is a consensus that pandemic business recovery requires federal solutions, as insurers continue to play their vital role in covering losses from hurricanes, wildfires, and civil unrest. “Insurance simplifies a rather complex risk management process and creates products that deliver simpler ways for people to be more prepared and resilient. Covering these hazards demands immense capital resources.”
Insurance policies, including standard business interruption policy triggered by direct physical damage, stem from a strong working partnership between insurers and regulators. “As many courts and academics around the country have stated, neither a virus nor bacteria leads to the direct physical damage of a business’s structure. This contract language is well-established; moreover, every policy is approved by individual states before they are issued to BI policy holders.”
“In an age when we’re all accustomed to just clicking the ‘terms and conditions’ box, ignoring agreements, paradoxically, has become something everybody can agree with,” wrote the Triple-I CEO of the organization’s endeavor in educating insurers and policyholders alike. “We view it as a success when nobody is shocked by what’s covered, and what’s not, under their insurance policies.”
If interested in engaging or sharing, the full piece can be found on LinkedIn here. For more information and resources, visit fairinsure.org.
By Sean Kevelighan, CEO, Insurance Information Institute
Insurers have responded quickly and effectively to 2020’s extraordinary volume of hurricanes, wildfires, and civil unrest. These events are resulting cumulatively in billions of dollars in insured claim payouts.
Yet a recent Forbes article stated that the owners of one of the largest Broadway theater chains were “shocked to learn that its insurance companies would not cover most of its losses during the COVID-19 pandemic.”
Making people more prepared and resilient is our fundamental goal at the Insurance Information Institute (Triple-I). We seek every opportunity to educate customers about how their insurance works before they suffer an insured loss. Part of this mission is to explain how pandemics are uninsurable. That’s because, unlike covered events, which are limited in time and geography, pandemics simultaneously affect everybody. This is something we’ve explained in briefings to legislators, legal experts and consumer and trade media.
Still, while insurers, regulators and the U.S. government work to deliver relief to business financially affected by future pandemics, we need to stay focused on the present. And to do this, we need to take a quick look into the past:
Insurance has been around for 350 years as a way for households, businesses and communities to recover and rebound after wildfires, hurricanes and other catastrophes. Time and again insurers have been there for their customers because that’s what they do. For example, in the months after 9/11, insurers paid out tens of billions of dollars to keep affected businesses afloat while New York and Washington, DC rebuilt from the rubble.
In 2020, insurers continue to perform their vital societal role, covering insured losses from record hurricane and wildfire seasons, as well as the most destructive civil demonstrations in more than a quarter-century. Insurance simplifies a rather complex risk management process and creates products that deliver simpler ways for people to be more prepared and resilient. Covering these hazards demands immense capital resources.
Questions? Your Policy Documents Have the Answers
Insurance is heavily regulated, and as the Triple-I reaffirmed at September’s annual summit of the National Association of Insurance Commissioners (NAIC), the industry we represent relies on a strong working partnership with regulators and government agencies across America to help make insurance work better for everybody.
One of the tangible results of this partnership is something that anybody can literally hold in their hands: insurance policy documents. Reading these documents to understand what you’re purchasing is an essential part of preparedness.
Business income (interruption) or BI insurance losses caused by a pandemic are not covered because direct physical damage, such as that caused by a hurricane or a fire, is what triggers a standard BI policy. As many courts and academics around the country have stated, neither a virus nor bacteria leads to the direct physical damage of a business’s structure. This contract language is well-established; moreover, every policy is approved by individual states before they are issued to BI policy holders.
We view it as a success when nobody is shocked by what’s covered, and what’s not, under their insurance policies. This is why the Triple-I regularly urges business owners to become familiar with their insurance documents and have regular conversations with their agent or broker to discuss anything they don’t understand.
In an age when we’re all accustomed to just clicking the “terms and conditions” box, ignoring agreements, paradoxically, has become something everybody can agree with. Social scientists consider this to be a form of cognitive dissonance: We know we should read our insurance policies, and yet few of us do. This is a behavioral pattern we’re all guilty of and the Triple-I understands there are many demands on a customer’s time.
Which brings us back to an essential point, that insurance companies prioritize their efforts and resources into making sure that everybody knows about the coverage they have and need.
Pandemics are uninsurable because insurers don’t collect premiums to cover business losses due to viruses and other pathogens. There are products available for this purpose, but an overwhelming majority of businesses decline to purchase them. These exclusions and the availability of pandemic insurance is a fact well known by many experienced professionals—notably risk managers and trial attorneys. The Triple-I is willing to work with anybody to make the public better aware of the risks and how to prepare for them.
The next pandemic surely will come. How insurers, their customers, and the federal government respond now will ensure our resources and energies are devoted to saving lives from all the threats the U.S. faces.
Sean Kevelighan is Chief Executive Officer of the Insurance Information Institute (Triple-I), a non-profit research, education and communications organization dedicated to improving public understanding of insurance—what it does and how it works.
It’s been more than six months since the pandemic first struck our economy, and millions of small business owners are still hurting. Yet a few trial attorneys see this disaster as an opportunity to line their pockets through costly insurance litigation.
Here’s Exhibit A of what we’re talking about: Plaintiffs lawyer John Houghtaling’s recent profile in Bloomberg Businessweek, a piece which touts his Lamborghini collection, lavish dinner parties, and multi-million dollar real estate.
Here are the facts:
Global pandemics are simply uninsurable. As opposed to epidemics and natural disasters, pandemics occur on a global scale, making risk pooling impossible. Business interruption (BI) premiums were not priced to factor in the “estimated $4.5 trillion global output loss inflicted by COVID-19 and its handling in 2020” according to the Geneva Association. Property/casualty insurers would have to collect BI premiums for 150 years to cover that cost.
This issue will not be solved in the courts. The majority of business interruption contracts expressly require the necessity of physical damage and explicitly don’t cover losses due to viruses or pandemics. So far, at least 17 judges in the U.S. have upheld these contract stipulations and dismissed suits against insurers. Despite this reality, trial attorneys continue to pursue expensive lawsuits against insurers that will not be won by their plaintiffs.
The insurance industry needs its policyholder’s surplus to fulfill their commitments to policyholders for covered risks. We are still in the middle of hurricane season in the southeast U.S. and there continue to be wildfires on the west coast. If the insurance industry is forced to spend the policyholders’ surplus on uncovered COVID-19 losses, that will further destabilize the economy because there will be no money left over for covered losses for physical damage from hurricanes, wildfires, tornadoes, and riots.
No matter which policymakers are elected to serve in 2021, we need a viable government-backed solution to provide immediate relief to business owners if America’s economy is to recover. There are several proposed solutions out there already, including the Business Continuity Protection Program (BCPP) and the Pandemic Risk Insurance Act (PRIA). You can read about the key principles necessary for a forward-looking government-backed pandemic recovery solution here.
To put it simply, litigation is a trend driven by greedy attorneys, and a misguided effort to alter existing contracts. The only true solution is government-backed pandemic relief. If you’d like to discuss this pressing issue with insurance industry experts, please reply to this email to reach the Insurance Information Institute.
For more information and resources, visit fairinsure.org.
As the election nears and prospects of additional federal aid to businesses and struggling Americans remain in limbo, the Future of American Insurance & Reinsurance (FAIR) spoke with former Nebraska Governor and U.S. Senator Ben Nelson about his time in public office, his experience dealing with the Great Recession as a senator, the role insurers play in their communities, and the kind of federal response that is needed during a crisis like the one we face today.
Lamson Dugan & Murray
Q: Tell us a bit more about your career. What led you to run for public office after a successful career as an insurance executive? What was that transition into public office like?
I knew I wanted to run for office since I was 17. Back in high school, Nebraska had a mock legislature over the Thanksgiving holiday. I was one of four candidates for governor (one for each Congressional district) and I won. I signed and vetoed mock legislation. Seeing what it was like to hold such an important office, I decided right then I wanted to do that again someday. I even told my wife before we got married I would run for governor one day. She didn’t take me seriously, of course, nor did my friends. So I got a law degree, worked in insurance, and got business experience to prepare myself to run for office. Once my kids were in college, I ran for governor against the incumbent, and despite no prior government experience, I won. After a successful reelection campaign and a second term, I decided to run for the U.S. Senate, where I also served two terms.
Q: How did your experience working in the insurance industry inform your work in public office?
Working in insurance, I learned all about the security that insurance provides. Health insurance, property insurance, liability insurance, and retirement plans all help provide people with the peace of mind they need to lead their lives. I wanted my work as an insurance regulator to help provide people security by regulating the insurance industry and its coverages. We all want safety and security for our families and the homes we’ve made. National security is a similar concept, providing security to all Americans. So as a member of the U.S. Senate Armed Services Committee, I channeled that experience and used it to pursue policies that helped provide national security to all Americans.
Q: While you were in office, you and your colleagues also faced a big economic crisis, which at the time had been the most serious financial crisis since the Great Depression. What did you learn from that experience in terms of the role the government has to play?
The Great Recession hit rather rapidly and it quickly became clear that it was going to be huge in terms of size and economic impact. It also became very apparent the government response would need to match the magnitude of the event. When President Obama took office, we considered a wide range of measures to address the crisis, including many large initiatives like the Troubled Asset Relief Program (TARP) and bailouts of banks and the auto industry. My colleagues and I worked to develop and enact a bipartisan stimulus package, and we were able to put a jobs bill in place that contained shovel-ready projects to assist businesses and industries to stimulate the economy. What we saw in the Great Recession was the impact of the crisis outstripped the capacity of any one industry or business to fix it. A government program had to be in place to help; only the federal government could help. There was then, and there is now, an important role for the government to play, so Congress needs to find that role. It’s not just something you can quickly draw up or put together; it has to be targeted, it has to be timely, and it has to match the magnitude of the crisis we’re facing. And we’re seeing a similar situation today.
Q: We’ve seen a lot of finger pointing about who is to blame for the current state of businesses around the country, including some folks blaming insurers. As a longtime insurance regulator and executive, what do you think about that criticism?
Because insurance provides protection and security for businesses and individuals, during a crisis, you tend to look to insurers to protect you. That’s where people turn, but not everything is insurable. Not every event is insurable. There are limits to how much one can be protected. If it’s not covered by insurance, is it sufficiently important for the economy? If so, the government should step in. This was the case with the Great Recession and it is the case now with the COVID-19 pandemic.
Global pandemics are basically uninsurable; insurance was not designed to insure events of this magnitude. Major crises like the one we face today are the responsibility of the government to address. It’s one thing to insure forest fires or tornados or other physical damage, but global pandemics are nothing like that. They are not limited in terms of time or geography like other insurable events. When business insurance isn’t capable of handling that kind of an event [COVID-19 pandemic], it is fair for us to look to the government to help. Pandemic-related expenditures could total trillions of dollars, depending how long the pandemic continues, and could decimate the economy. The federal government can and must provide critical financial support for this pandemic, as well as work to prepare for future pandemics. There will be more crises that are too big for insurance to handle, and the government must be ready. Congress needs to think critically about which preparations it must undergo to be prepared for a future crisis of a similar size.
Q: What is something you think gets misconstrued about the role institutions like insurers play in our economy and communities?
Insurance provides coverage and protection for businesses and individuals but naturally, there are certain limitations. Each policy isn’t, and can’t be, all-encompassing, or premiums would not be feasible or affordable. In general, businesses need a better understanding of their coverage. Just because they have insurance it does not mean that pandemic-related losses are automatically covered. There is no trick, just a recognition that certain risks cannot be insured.
Q: What form of relief do we need to see right now to help struggling businesses and business owners?
The federal government has already taken considerable steps, like with the CARES Act, to help businesses and individuals, including providing additional unemployment insurance aid to states. The Federal Reserve has also taken important and significant steps to help stabilize financial markets and support the flow of credit in the economy. But it has not been enough. Unemployment numbers are still very high, and businesses around the country are still struggling. Especially as we enter the cold winter months and see a virus resurgence, Congress needs to create and enact additional measures to support struggling Americans during this crisis. We need a government-backed pandemic solution to provide businesses with relief without jeopardizing existing insurer commitments.
Q: What should we do to prepare for the next pandemic in terms of risk to American businesses?
We don’t yet have all the answers, but I think we recognize there needs to be a better and faster way to support American business owners. Engaging in all this litigation we’re seeing right now is certainly not the way and will end up having adverse effects on the economy. We need Congress to come together, work with businesses, industry leaders, and insurers to find a way to handle the losses from an event of this magnitude. There will be future viruses and the federal government must understand its role and be prepared to step in to appropriately support businesses across the country.
Ben Nelson is a former U.S. senator and governor for Nebraska and the former director of the Nebraska Department of Insurance. He also served as the chief executive officer of the National Association of Insurance Commissioners from 2013 through 2015. He is currently the CEO of Insurance Care Direct, a health insurance agency in Florida.
ABOUT FAIR
FAIR is an initiative of the Insurance Information Institute and its member companies, whose mission is to ensure fairness for all customers and safeguard the industry’s long standing role as a pillar of economic growth and stability. For more information, visit fairinsure.org and follow @FAIRInsure on Twitter.
President of the American Tort Reform Association (ATRA) Sherman Joyce recently published an op-ed criticizing the trial bar’s nationwide pursuit of misguided litigation against insurers, in an attempt to force business interruption insurance (BI) to cover COVID-19 losses.
Key takeaways from Joyce:
Many trial attorneys are seeking to capitalize on the pandemic crisis and judicial system for their own financial gain. “Now, trial lawyers are at it again, upending the legal and regulatory systems for their own benefit. Only this time, they’re using the suffering caused by COVID-19 to target a critical sector of the American economy: the insurance industry.”
It is clear that plaintiff attorneys are misguided when it comes to their anti-insurer litigation trend on BI claims. “For trial lawyers, there’s a lot of money to be made in suing insurance companies for COVID-19 relief. But there’s a problem: On this issue, plaintiffs simply don’t have the law on their side. Business interruption insurance has generally been understood to protect against losses caused by physical destruction or property loss.”
Forcing insurers to cover COVID-19 BI claims would be detrimental to the insurance industry—a backbone of the U.S. economy. “Their business interruption campaign not only threatens the integrity of the insurance industry and the American economy more generally, but it also weakens our nation’s fundamental democratic institutions.”
To date, there has been a growing list of court decisions in state and federal courts across the U.S. that prove standard BI policies don’t cover COVID-19 shutdowns. Direct physical loss or damage must occur for a BI claim to be triggered, and government orders do not constitute direct physical loss or damage to property.
If interested, the op-ed can be found here and is pasted below. For more information and resources, go to fairinsure.org.
Law360: Virus Insurance Shouldn’t Be Regulated Through Litigation By: Sherman Joyce, 10/27/20
It’s been nearly two decades since Robert Reich, the former U.S. secretary of labor, wrote a prescient op-ed about what he called the era of regulation through litigation.
In the piece, Reich outlined a pattern of behavior in which litigators manipulate the American judicial system, using it to circumvent our nation’s traditional regulatory procedures and practices. Through the process of regulation through litigation — Reich’s aptly coined term — unscrupulous attorneys utilize lawsuits as a tool to establish judicial precedent, effectively imposing de facto regulation over the industry they wish to target.
Whether it’s within the tobacco industry or the firearms business, litigators have previously used this technique to affect policy and alter law in their favor. It’s undeniably an insidious scheme — but nevertheless an effective one. Now, trial lawyers are at it again, upending the legal and regulatory systems for their own benefit. Only this time, they’re using the suffering caused by COVID-19 to target a critical sector of the American economy: the insurance industry.
Keen observers of the legal sphere likely have noticed a growing trend as of late: the increasing frequency of COVID-19-related business interruption lawsuits. Across the nation, litigants have filed over 1,300 suits against insurance companies.
Interestingly, though, seemingly all those cases make essentially the same argument. They each claim insurers should be held liable for the financial damages incurred due to COVID-19 and the resulting economic lockdowns, despite Congress already providing nearly $350 billion in relief aid. If that sounds like a coordinated effort, that’s because it is.
Why go through all that trouble, though? For trial lawyers, there’s a lot of money to be made in suing insurance companies for COVID-19 relief. But there’s a problem: On this issue, plaintiffs simply don’t have the law on their side.
Business interruption insurance has generally been understood to protect against losses caused by physical destruction or property loss. According to the National Association of Insurance Commissioners, business interruption insurance doesn’t typically cover losses related to a reduction of services or viral contamination.
This makes sense because if insurers were forced to cover the costs of every business across the nation affected by the lockdown, the insurance industry would collapse into bankruptcy. And the industry’s assets, needed for assistance during hurricanes, wildfires and other disasters, would cease to exist.
But for greedy trial lawyers, broader considerations for the economy always elude them. They want to profit off the backs of insurers and businesses struggling under COVID-19 — and they are using the process of regulation through litigation as a means to that end.
Indeed, this campaign to flood America’s civil court system is straight out of the trial lawyer’s playbook. These civil attorneys first concoct far-flung legal theories which, conveniently, happen to further their own ambitions. They then market these theories to potential plaintiffs — individuals and businesses harmed by COVID-19 and desperate for relief. And after the lawyers have inundated the judicial system with thousands of meritless lawsuits, they wait for an activist judge to effectively rewrite the law by ruling in their favor.
Such a ruling would establish the needed judicial precedent — a model for other courts to follow — providing the legal basis for insurers to bear financial responsibility for business losses associated with COVID-19. This creates a snowballing effect. One court’s decision influences a second, the second’s is then cited as precedent for the third, and so on.
The pattern continues until once plain reading of the general policy is lost under the rising tide of judicial precedent. In this way, trial lawyers can regulate the insurance market without ever passing a single piece of legislation. That is the power of regulation through litigation, and as is readily apparent, the consequences of that scheme are quite dangerous.
As Reich foresaw in his op-ed nearly 20 years ago, trial attorneys’ efforts to regulate industries through the judicial system create blatant end-runs around the democratic process. Their business interruption campaign not only threatens the integrity of the insurance industry and the American economy more generally, but it also weakens our nation’s fundamental democratic institutions.
Americans’ elected representatives — not the trial bar — should have the authority to regulate business within the U.S. The courts must restore that balance of power by rejecting the dreaded return of regulation through litigation.
Sherman Joyce is the president of the American Tort Reform Association.
Yesterday, U.S. District Judge Charles R. Breyer dismissed a proposed class action by Bay Area restaurants against a California insurance company because the insurer has a virus exclusion.
When explaining his decision, the California federal judge said, “COVID-19 remains the ‘indirect’ cause of the insured’s harm,” meaning the virus exclusion expressly bars coverage. Plain and simple, Judge Breyer acknowledged that “the court cannot ignore that the insurance policy excludes coverage for losses caused by viruses, like COVID-19.”
Judge Breyer also held that the insurer’s virus exclusion refers not only to a stand-alone virus, but also pandemics.
This is an important development in the ongoing litigation fight between business owners and their insurers across the U.S. You can review a compendium of court decisions affirming the necessity of direct physical damage in BI coverage here.
Judge Breyer’s decision is further confirmation that insurers shouldn’t cover the costs of pandemic losses. Global pandemic risks are uninsurable, and the majority of policyholders’ business interruption contracts and premiums reflect that standard.
You can read more about the California case in Law360 here.
Earlier this month, a North Carolina court judge ruled in favor of a group of restaurants, finding that the insurer must cover losses resulting from state-mandated COVID-19 shutdowns even if COVID-19 had not caused property damage.
This is a first in more than 15 rulings that did not rely on the historical legal precedent that a virus does not cause direct physical damage. A few key conditions contributing to this decision have been overlooked, according to a summary by the Centers For Better Insurance.
The ruling also gave rise to the notion that ambiguous language favors the plaintiff, and for this reason, many more decisions like this will ensue. This assumption, however, is inaccurate for various reasons:
Insurance contracts are carefully underwritten, with clear parameters guiding the coverage. Litigation attempts to characterize insurance language as unclear or ambiguous often seek to rewrite existing policies.
As shown in our court decisions tracker, judges presiding over both federal and state courts overwhelmingly ruled in favor of insurers, citing that the COVID-19 virus does not cause “direct physical damage.”
This decision is not yet the final word on the case, given that the insurance company involved, Cincinnati Insurance Co., is appealing the decision.
With the election weeks away, the post-COVID economy is the top-of-mind issue for politicians and voters alike. Policymakers must establish a viable, sustainable, and inclusive government-backed solution to provide the immediate relief that business owners need if America’s economy is to truly recover.
Although global pandemics are uninsurable, business owners around the nation are currently caught up in pricey, slow-moving litigation to fight their insurers for claims their business interruption insurance contracts did not cover. At least 13 court decisions made so far affirm that insurers cannot be held responsible for the economic devastation caused by this pandemic.
A new report by ratings company AM Best asserts that a government-backed pandemic risk backstop is necessary given that pandemics are uninsurable and the policyholder’s surplus is only so large. “Uncertainty from lawsuits aimed at insurers and legislative policy measures being contemplated that would nullify business interruption exclusions” will create major challenges for the insurance industry in determining reserve estimates and payout patterns.
In an Insurance Journal piece on the election’s potential impacts for the insurance industry, Andrew Simpson notes that the need for a government solution for managing pandemic risks won’t disappear when 2021 rolls around, “[r]egardless of whether Democrats or Republicans are in charge.”
There are several proposed solutions out there already, including the Business Continuity Protection Program (BCPP) and the Pandemic Risk Insurance Act (PRIA), but no matter which policymakers are elected to serve in 2021, we need a solution that adheres to the following principles:
Maintain the federal government as a primary provider of relief, reflecting the reality that pandemic risks are not privately insurable.
Provide widely accessible relief payments to businesses in a fast and efficient manner once a pandemic is declared by the federal government, with minimal chance of abuse.
Protect businesses from losses, and incentivize businesses to retain employees, without jeopardizing existing insurer commitments.
For more information and resources, please visit fairinsure.org
Sean Kevelighan, CEO of the Insurance Information Institute (Triple-I), recently discussed the need for forward-looking federal solutions to support businesses impacted by the pandemic in an interview with Slayton Search Partners.
Kevelighan highlighted why insurers should not be asked to cover pandemic losses:
“Most insurable events are limited by time and geography,” said Kevelighan, “whereas the pandemic is impacting everyone, at the same time, everywhere.”
“If businesses have to close because of direct physical damage, business interruption policy will cover the losses incurred while closed. Viruses and bacteria do not trigger physical damage,” the Triple-I CEO further explained.
“These are trying times for businesses, but it’s not the insurance element that will get that relief,” concluded Kevelighan. “Only the federal government has the wherewithal to help support businesses and provide relief in this time of need.”
Over the past couple of weeks, two additional court rulings have reaffirmed that business interruption (BI) policies are only triggered by direct physical damage to property and are not designed to cover pandemic-related losses. These are part of a nationwide litigation trend—spearheaded by trial attorneys—attempting to retroactively change BI contracts to cover uninsured pandemic claims, jeopardizing insurers’ ability to meet promises to policyholders’ on covered claims.
U.S. District for the Middle District of Florida: “The judge rejected [policyholder’s] argument that economic damage is synonymous with physical loss. ‘Plaintiff’s argument is unpersuasive because Florida law and the plain language of the policies reflect that actual, concrete damage is necessary,’ he said.” (WestLaw Today, 9/29)
U.S. District Court for the Northern District of Georgia: “A Georgia federal judge has dismissed a [policyholder’s] COVID-19 business interruption coverage lawsuit, ruling that a government stay-at-home order did not cause the eatery to sustain ‘direct physical loss of or damage’ to its insured property or surrounding premises.” (HarrisMartin, 10/7)
To date, there has been a growing list of court decisions across the U.S. that affirm standard BI policies don’t cover COVID-19 shutdowns. Direct physical loss or damage must occur for a BI claim to be triggered, and government orders do not constitute direct physical loss or damage to property. For more information, please visit fairinsure.org.
