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Last week, the legal panel overseeing multidistrict litigation (MDL) in U.S. federal courts ruled that the hundreds of billions of dollars’ worth of business interruption (BI) claims tied to the pandemic cannot be consolidated. In their decision, the panel noted consolidation would slow down the progress of individual cases, many of which have reached the point where judges are ready to make decisions. 

“Having one judge oversee more than 1,000 cases — grouped by individual insurers — would be too cumbersome and it’s more efficient to have courts around the U.S. decide whether the coronavirus fallout triggered coverage by major insurers such as Hartford, Travelers and Lloyds of London, the legal panel ruled Friday,” a Bloomberg Law article explained. 

Bloomberg Law covered the story on October 2, and the Triple-I’s non-resident legal scholar Michael Menapace provided the insurance industry’s perspective in a written statement: “‘This is the correct result,’ Michael Menapace, a lawyer and member of the Insurance Information Institute, said in an emailed statement. ‘There are no efficiencies to be gained by combining different insurers who write different policies for different policyholders who are in different industries and made claims under different factual scenarios.'”

His comment was also picked up by the Insurance Journal for their coverage of the MDL decision.

A key consideration at hand in this decision is time. It will take months, if not years, to settle these cases in court. The plaintiffs in these cases are business owners in need of true relief that only the federal government can provide. The immense cost and great time spent litigating will only further harm business owners.

And as we’ve seen in most cases decided thus far, court decisions are likely to simply reaffirm that BI contracts are not designed to cover pandemics and necessitate a direct physical loss to property to be activated. 

You can read the Bloomberg Law article here and the Insurance Journal article here. For more information, please visit fairinsure.org.

Earlier this week, the American Action Forum (AAF) held a virtual forum examining the COVID-19 policy responses and their successes and failures in providing relief for businesses during the pandemic. In a companion report, AAF Director of Financial Services Policy Thomas Wade dove into the state of play of financial support for businesses during this crisis

In his piece, Wade discusses several important topics, including the Federal Reserve’s emergency lending facilities, business interruption (BI) insurance, and protecting businesses from a new class of coronavirus litigation. 

Former Nebraska Governor and U.S. Senator Ben Nelson, a longtime insurance executive and regulator, said the following after the event: 

“The COVID-19 pandemic has brought unprecedented financial harm and uncertainty for businesses across the country. If COVID-19 has shown us anything is that global pandemics are uninsurable; only the federal government has the financial ability to provide business relief during this crisis. AAF’s report comes as a timely and crucial reminder that while some financial relief measures have been enacted, they have not done enough to support American business owners during this crisis. Now it’s time for Congress to come together to find a government-backed solution that brings much-needed relief for struggling businesses around the country.” 

Wade provides an important summary of the ongoing BI debate in his report, highlighting the implications of the absence of a federal backstop during a pandemic for insurers and businesses alike. 

• Wade reiterates what insurers have been showing for months: only the government has the financial means to provide business relief during a crisis of this scope and magnitude. “Despite most insurance policies explicitly excluding viral risks, insurers face enormous pressure to pay business-interruption claims; a possible solution in the future is to create a federal reinsurance program with a backstop, allowing insurers to write pandemic-related policies.”
  

• Additionally, he points out that without a federal solution, businesses are turning to litigation against insurers. Still, courts are overwhelmingly siding with insurance companies because contracts are clear. “The primary battleground for insurers are courts across the world; in the United States a growing number of courts appear to be finding in favor of insurers by noting the necessity of physical damage as a trigger to business interruption insurance.”
  

• Wade also emphasizes, “Without further government aid, the temporary closure of hundreds of thousands of small businesses could be permanent by the time the national emergency is lifted.” He continues, “the government’s role must be to provide the financial relief required to keep businesses afloat and not choose winners or losers by vilifying certain industries, from insurers to landlords.”

For a full event recap, check out FAIR’s latest blog post. For more information on the ongoing BI debate, visit fairinsure.org.

Earlier today, FAIR unveiled a new educational resource that offers a comprehensive overview of business interruption (BI) insurance and explores the need for a federal solution to pandemic recovery. The resource breaks down core insurance concepts such as risk pooling, underwriting, insurance premiums, and industry surplus in a visually-appealing and digestible way through graphics and real-life cases. It also explains the purpose and physical damage requirement for BI insurance.

Citing industry projections, polling data, court rulings, and quotes from Members of Congress, the resource also highlights the consensus among the public, policymakers, and the legal community that the federal government should be the sole provider of pandemic relief, and that litigation attempts to retroactively rewrite BI contracts are harmful to consumers as well as insurers.

You can view and download the resource here. Let us know if we can ever be of any additional assistance on this topic. For more information, visit fairinsure.org.

Earlier today, the American Action Forum (AAF) hosted an event convening experts to discuss the urgency of government-backed financial relief for businesses whose incomes have suffered under the coronavirus pandemic conditions and what challenges lie ahead.

Entitled “Assessing Financial Support for Businesses During the Pandemic,” the discussion was centered on the following key topics:

• The impact and success of the Paycheck Protection Program and the Federal Reserve’s emergency lending programs, particularly the Main Street Lending Program
• Pandemic business interruption insurance and the potential for a federal pandemic program
• Protecting businesses from shouldering excessive costs due to the new field of coronavirus litigation

Among the event participants was Insurance Information Institute (Triple-I) CEO Sean Kevelighan. In a discussion with AAF’s Director of Financial Services Policy Thomas Wade, Kevelighan provided an overview of the business interruption (BI) insurance landscape in the context of the pandemic. Key highlights included:

• Global pandemics are largely uninsurable. “Compared to other covered catastrophes—hurricanes, wildfires, vandalism from civil unrest—a pandemic is not limited to time or geography. What we’re seeing now with COVID-19 is impacting every community, every economy, and all at the same time. And with this, from an industry that relies on the law of large numbers, you simply can’t price risk in a way that would be efficient.”
  

• Standard business interruption (BI) insurance necessitates direct physical damage. “Beyond the enormity of a pandemic catastrophe, a virus does not cause direct physical damage, which is nearly always needed to trigger a property insurance policy, particularly for businesses insurance and business interruption insurance policies.”
  

• The lack of a federal system to provide the critical financial relief businesses has created an opportunity for trial attorneys to capitalize on business owners’ desperation. “Sensing [business owners’] desperation, trial attorneys have unfortunately dusted off their playbooks and seized on the opportunity. They’re selling a false sense of hope to consumers; they’re filling court houses with litigation that is attempting to retroactively rewrite contracts by manipulation of language and interpretations.”
  

• As insurers work to meet promises for policyholders facing covered events such as wildfires, forcing insurers to retroactively cover pandemic-related losses is detrimental to the insurance industry—a backbone of the economy. “The insurance industry is concerned about these misguided and costly attempts—mainly by trial attorneys—to take capital away that we’ve set aside for claims that are actively being paid right now as we are in the midst of extreme seasons of hurricanes and wildfires. We’ve also seen incidents of rioting and civil unrest. To be clear, our own economic analysis at Triple-I shows that any attempt to retroactively pay business interruption claims would put systemic strain on the insurance industry. Notably, this industry was one of the financial services industries that weathered our previous recession well because of how safely we manage our capital. But in this case, it would only take a matter of months to bankrupt the industry.”
  

Relatedly, you also can learn more about this discussion and the broader state-of-play for business relief from a companion report released yesterday by Thomas Wade. For more information on the ongoing business interruption debate, visit fairinsure.org

Yesterday, Insurance Journal’s Academy of Insurance director Patrick Wraight weighed in on the ongoing debate over business income (interruption) insurance (BI). His conclusion? Business losses caused by pandemic-related shutdowns are a problem that can’t be solved by insurance. 

Wraight elaborates:

• BI policy contracts clearly specify that coverage extends only to physical damage, with most explicitly excluding coverage for viruses. “Is the problem that insurance companies aren’t paying for COVID-19 business income losses? No. That’s not the problem. The claims are being denied because the companies are reading the policies correctly in this case.”
  

• These policies are in full compliance with state regulations. “Is the problem that some insurance policies exclude coverage for property losses related to viruses? No. That’s not the problem. If the policy is written by an admitted carrier, the state had to approve all of the forms before they were issued.”
  

• Proposed legislative solutions that would retroactively change contracts to cover pandemic-related losses are based on a fundamental misunderstanding of insurance. “Take it from someone who lives in a state where property insurance is changed by the state legislature almost every year. This is a terrible idea. The legislatures should stay out of mandating insurance coverage. They don’t know what they’re doing.”

Understanding the need to protect businesses from future pandemic-related losses, the FAIR initiative has established a set of policy principles for a government-backed pandemic recovery solution. Find out more here.

This morning, President of the American Tort Reform Association (ATRA) Sherman “Tiger” Joyce published an op-ed on the trial bar’s pursuit of misguided class action litigation in states across the country in a futile attempt to get business interruption insurance (BI) to cover COVID-19 losses.

In his piece, Joyce discusses how the trial bar has misled business owners and placed their own profits ahead of the businesses who are struggling most.

According to Joyce:

• Many trial attorneys seek to capitalize on the pandemic crisis for their own financial gain. “Across the nation, plaintiff’s attorneys are pouring money into advertising, encouraging businesses affected by the government-mandated lockdowns to seek legal recompense. From January to May alone, law firms have spent upward of $67 million on mass tort television advertisements, in the hopes that their call to action will spur on a wave of COVID-19-related lawsuits.”
  

• Trial attorneys’ playbook—used now in their anti-insurer BI insurance trend—is not novel. “Unfortunately, these underhanded tactics are nothing new for the trial bar. Whether they’re suing the chemical industry over polyfluoroalkyl substances—synthetic chemicals found in various kitchen appliances—or taking McDonald’s to task over spilled hot coffee, the lawyers’ modus operandi is the same. They “sell” litigation as the way to solve society’s problems.  And now, they’re attempting to repeat that process with COVID-19. Only, when it comes to the issue of business interruption insurance, the stakes are much higher.”
  

• Trial bar’s claims that insurers must cover losses from COVID-19-related government shutdowns is misguided as BI necessitates physical damage. “According to the National Association of Insurance Commissioners (NAIC), the primary regulators for insurers, ‘business interruption’ insurance policies generally do not cover losses due to a pandemic. These policies are intended to cover costs associated with physical damage, not viral contamination. Recent court decisions support this view, but the volume of litigation is expected to continue to grow, and lawyers will continue to recruit clients all in the hope of settling claims and reaping outsized fees for themselves.”
  

• Forcing insurers to cover COVID-19 BI claims would be detrimental to policyholders filing covered claims and to the insurance industry—a backbone of the U.S. economy. “If insurance companies were required to cover the full extent of businesses’ COVID-19 claims, the result would be catastrophic. According to the NAIC, the industry would be bankrupted very quickly. In addition, this would deprive policyholders who need these assets to pay claims for recent hurricanes, wildfires and more routine auto accident claims. The resulting bankruptcy would ripple throughout the already-tenuous economy. Businesses would close, Americans would be laid off, and our nation’s economic recovery would be threatened.”
  

To date, there has been a growing list of court decisions in state 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 pasted below and here. For more information and resources, go to fairinsure.org.

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InsideSources: For trial lawyers, COVID-19 Is Just Another Feather In Their Cap
By: Sherman “Tiger” Joyce, 9/23/20

There’s no question the coronavirus pandemic has taken a heavy toll on our nation. It has caused the deaths of nearly 200,000 Americans, brought about unprecedented economic turmoil and continues to harm the lives of everyday people.

But not everyone is lamenting the devastation wrought by the coronavirus. Indeed, for certain trial lawyers, COVID-19 isn’t a tragedy — it’s an opportunity.

As America is struggling to recover from the crippling effects of the economic lockdown, many unscrupulous lawyers are attempting to capitalize on the crisis for financial gain. Across the nation, plaintiff’s attorneys are pouring money into advertising, encouraging businesses affected by the government-mandated lockdowns to seek legal recompense.

From January to May alone, law firms have spent upward of $67 million on mass tort television advertisements, in the hopes that their call to action will spur on a wave of COVID-19-related lawsuits. In fact, some firms received millions of dollars in federal aid under the Paycheck Protection Program, which they then used to boost their firms’ advertising budgets.

These lawyers aren’t seeking solutions; they’re just creating burdensome litigation as part of a get-rich-quick scheme by targeting America’s insurance companies.

Sadly, we’ve seen this countless times before: Avaricious lawyers latch onto the hot-button issue of the day, concoct unfounded legal theories, mount massive public pressure campaigns, and flood the civil court system.

They use various tactics — from advertising and media blitzes to celebrity cameo appearances — to increase the popularity of the narrative they are concocting and compel their targets to settle. This is the trial lawyers’ playbook, and for them, the merits of the cases they bring are almost irrelevant.

Courts have already been inundated with claims against insurers. Plaintiffs have filed more than 1,100 COVID-19 lawsuits, claiming that insurance companies should be required to foot the bill for the costs to businesses caused by government-mandated lockdowns. This assigns responsibility to the wrong place.

According to the National Association of Insurance Commissioners (NAIC), the primary regulators for insurers, “business interruption” insurance policies generally do not cover losses due to a pandemic. These policies are intended to cover costs associated with physical damage, not viral contamination.

Recent court decisions support this view, but the volume of litigation is expected to continue to grow, and lawyers will continue to recruit clients all in the hope of settling claims and reaping outsized fees for themselves.

Unfortunately, these underhanded tactics are nothing new for the trial bar.

Whether they’re suing the chemical industry over polyfluoroalkyl substances — synthetic chemicals found in various kitchen appliances — or taking McDonald’s to task over spilled hot coffee, the lawyers’ modus operandi is the same. They “sell” litigation as the way to solve society’s problems.  And now, they’re attempting to repeat that process with COVID-19. Only, when it comes to the issue of business interruption insurance, the stakes are much higher.

If insurance companies were required to cover the full extent of businesses’ COVID-19 claims, the result would be catastrophic. According to the NAIC, the industry would be bankrupted very quickly.

In addition, this would deprive policyholders who need these assets to pay claims for recent hurricanes, wildfires and more routine auto accident claims. The resulting bankruptcy would ripple throughout the already-tenuous economy. Businesses would close, Americans would be laid off, and our nation’s economic recovery would be threatened.

Clearly, the trial bar’s preferred outcome — waves of litigation to force lucrative settlement deals — isn’t the best path forward for the United States. It doesn’t benefit business owners, who are forced to expend time and effort on lawsuits likely to be dismissed.

It stretches the resources of America’s already-overburdened civil justice system beyond its limits. Finally, it threatens to bankrupt the insurance industry, dragging the U.S. economy down with it in the process.

So, who does the trial attorneys’ litigation playbook benefit? Only the lawyers themselves.

For these individuals, COVID-19 is merely another money-making opportunity — another feather in their cap — even if that profit comes at everyone else’s expense.

Sherman “Tiger” Joyce is the president of the American Tort Reform Association. He wrote this for InsideSources.com.

Did you know the history of business insurance can be traced back to a 17th century coffee house in London, where ship owners and merchants would gather to discuss commercial risks?

Triple-I CEO Sean Kevelighan notes this long history of insuring the risks and hazards facing companies big and small in a new op-ed in NJBiz. Since the beginning of business insurance, Kevelighan writes, insurers have repeatedly stepped up as financial first responders. Whether in the aftermath of the 9/11 terrorist attacks or in response to the still ongoing 2020 hurricane and wildfire seasons, insurers have covered claims to mitigate losses for businesses large and small.

Yet unlike these covered catastrophes, global pandemics are largely uninsurable for two primary reasons:

• First, viruses do not cause direct physical damage to properties. “A business insurance policy is triggered as the result of properties incurring physical damages, such as fire, hurricanes, or vandalism.
  

• Second, standard insurance policies have explicit exclusions for pandemics. “As further clarity to the direct physical damage issue, in the U.S., standard policies provide an exclusion that is clearly presented and prominently presented on the policy declarations page.”
  

“Only the federal government is capable of providing the financial relief that is needed by so many businesses today,” Kevelighan concludes.

Read the full op-ed here.

For more information, visit fairinsure.org.

The U.K. High Court issued a decision on pandemic-related business income (interruption) insurance (BI) claims against a set of 21 representative policies issued by 8 insurers presented by the UK Financial Conduct Authority (FCA), backing policyholders “on the majority of key issues.”

This decision is unlikely to apply to BI litigation in the U.S., as policies in the FCA test case do not include language requiring direct physical damage to property. As a reminder, a growing list of court decisions in the U.S. affirm that direct physical damage is necessary to trigger a BI claim. 

Media outlets have noted FAIR’s commentary as explanation for why the U.K. findings are not applicable in the U.S.: “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, see the links below or visit fairinsure.org.

• FAIR: U.K. High Court Ruling: Why It’s Not An Indicator For The U.S. BI Litigation
• Reinsurance News: FCA’s test case ruling irrelevant to current US BI litigation: FAIR
• InsuranceNews.com.au: UK regulator calls for insurers to respond to test case ruling

The past weeks have seen a flurry of legal activity in the ongoing debate surrounding business income (interruption) insurance (BI) across the country. 

While the vast majority of these cases have been decided in favor of insurers, it’s important to remember how this debate is integral to ensuring the insurance industry is able to fulfill its critical role in communities across the country.

A reminder of the key points to keep in mind:

• BI policies were never intended to cover pandemic risks. BI contracts were underwritten and designed to cover insurable risks stemming from physical damage, such as natural disasters and riot damage. These policies were not underwritten or priced to reflect the cost of pandemic risks.
  

• Reinterpreting insurance contracts would jeopardize the policyholder surplus. If insurers are forced to cover pandemic risks for which they did not collect corresponding premiums, the policyholders’ surplus—the cumulative value of insurers’ assets, minus their liabilities—could be placed in jeopardy. The surplus is set aside to pay claims resulting from covered events that cause direct physical damage to property, such as fires, tornadoes and hurricanes.
  

• These actions could undermine insurers’ ability to offer affordable BI policies in the future. New York state superintendent of insurance Howard Mills recently wrote that if insurers were forced to cover pandemic risks, “business owners would not have the ability to purchase affordable BI insurance and would be deprived of coverage when non-pandemic disaster strikes.” 
  

For more information on the true cost of rewriting BI policies, take a look at our fact sheet.