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Earlier today, Chubb CEO Evan Greenberg addressed business interruption in his opening remarks at the company’s second quarter earnings call. 

Greenberg reiterated the uninsurable nature of pandemics and the necessity for the federal government to take the lead in mitigating pandemic risks. To properly service all policyholders, Greenberg said, the insurance industry must not be distracted by attacks from the legal community.

Some other highlights from Greenberg:

• Trial attorneys are using business interruption (BI) claims to attack the insurance industry for their own profit. The trial bar represents “many businesses which purchased BI coverage that does not provide cover for pandemic, and these customers are understandably disappointed and upset. Plaintiff attorneys are attempting to torture or reverse engineer insurance contract language to conjure up business interruption coverage that for the most part simply doesn’t exist.”
  

• Standard BI premiums are not designed to cover the enormous and uninsurable risk associated with pandemics. “State insurance regulators, who approve the policies, have been clear that this risk is not covered and that the industry could not cover the massive open-ended tail risk of a global pandemic because it threatens the industry’s solvency. Without the federal government playing a major role to cover the tail risk, pandemics are simply uninsurable on a broad basis.”
  

• Forcing the insurance industry to pay BI coverage would jeopardize the industry’s ability to respond to legitimate claims and support all policyholders. “It would be wrong – in fact, catastrophic and irresponsible – to pay the claims of those who didn’t have coverage, and in fact didn’t pay premiums for the coverage, by using funds that have been properly reserved for the legitimate claims of the vast majority of our P&C policyholders who number over 100 million globally.”

You can read more about Greenberg’s remarks in Business Insurance’s summary of the Chubb earnings call.

For more information and resources, go to fairinsure.org.

Recently, the Houston Business Journal reported on the litigation trend against insurers attempting to get business interruption (BI) policies to cover losses from the coronavirus pandemic. The piece features insights from Insurance Information Institute CEO and President Sean Kevelighan explaining why the attorneys-driven trend is a misguided effort to alter existing contracts and why the solution lies in a government-backed pandemic relief.
 
According to Kevelighan:

• Retroactively altering BI insurance contracts to cover pandemics is unconstitutional and would put the industry’s solvency at risk, jeopardizing its ability to meet existing promises to policyholders. “He [Kevelighan] argues that retroactively altering insurance contracts to this extent is unconstitutional and would bankrupt the industry within a matter of months. ‘I would say the litigation trend is looking more towards language manipulation attempts as opposed to trying to retroactively fit contracts, thankfully,’ Kevelighan said.”
  

• As pandemics are uninsurable, only the federal government has the financial capacity to provide the critical relief that businesses need. “Kevelighan asserts that much of the relief will need to come from the government — not insurance companies. For instance, tens of thousands of Houston-area businesses were approved for billions of dollars in Paycheck Protection Program loans, according to Small Business Administration data. ‘We have to establish that since global pandemics are largely uninsurable, this needs to be managed, and the federal government needs to be that primary provider of relief,’ Kevelighan said.”

As a reminder, standard BI insurance policies necessitate a direct physical damage to property. The insurance industry remains committed to keeping its promises to Main Street and supporting its communities during these challenging times.
 
For more information and resources, go to fairinsure.org.

Insurers have developed various forward-looking, government-backed solutions to pandemic recovery. While the specifics of the proposals vary, they are all grounded in the fundamental reality that pandemics are uninsurable, and that therefore federal support is necessary.

As discussions surrounding a pandemic insurance solution develop, it is imperative that proposals incorporate core principles that can provide relief to business owners today and protect them from similar situations in the future. Today, FAIR published a new fact sheet detailing key guiding principles that such a solution must reflect. 

Proposed policies must: 

• Maintain the federal government as a primary provider of relief, reflecting the reality that pandemic risks are not privately insurable. 
  • Insurance works by pooling risk. Insurers can cover damage even from extremely expensive events such as hurricanes or wildfires because risk-adjusted premiums have been collected, and such events are limited in scope both geographically and temporally.
  • In contrast, a pandemic has the potential for unlimited impact and range. Only the federal government has the financial capacity to cover all pandemic-related losses.
    

• 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.
  • The universal scale of pandemic damage calls for a relief program that is equally broad in reach. However, given the extraordinary losses resulting from a potential future pandemic, purely market-based risk-adjusted insurance policies would necessitate premiums that are cost prohibitive for most businesses. This would leave many—especially small businesses—unprotected.
  • Small businesses often have limited financial reserves, making it difficult for them to stay in business during a prolonged period of disruption. By clearly tying pandemic recovery payouts to a business’s operating expenses, small businesses rapidly would be able to access financial relief in lieu of an indemnity-based process.
  • Any relief program at the necessary scale for pandemic relief must also prioritize accountability, minimizing inefficiency, fraud, waste, and abuse. Placing this transparency and oversight at the forefront of relief proposals would improve execution and expedite much-needed help to the businesses and communities across the country in dire need.
    

• Protect businesses from losses, and incentivize businesses to retain employees, without jeopardizing existing insurer commitments. 
  • If insurers were made to cover pandemic losses without having collected corresponding risk-adjusted premiums, the viability of the insurance industry would be placed into jeopardy within a matter of months.
  • A pandemic insurance solution must protect insurers’ existing commitments, such as to auto and homeowners’ policyholders.
  • Keeping employees on the payroll is essential to economic stability, while state-level presumptions related to workers compensation claims should be recognized.
    

The full fact sheet can be found here.

Over the weekend, the New York Post editorial board weighed in on two new pieces of proposed legislation that encourage lawsuits against insurers, which would place class action lawyers’ paydays ahead of struggling business owners. The two bills and the “mad rush of new cases” that will ensue, the editorial board asserted, benefit only New York trial attorneys trying to line their own pockets.

The editorial board notes several other provisions in Assembly Bill A5623B that may well harm insurers and policyholders alike:

• The bill provides insurers zero protection against meritless lawsuits. “This would lead to a mad rush of new cases—that’s the point. And because the bill contains no safeguards against meritless suits, insurers might simply pay bogus claims or bump up payouts just to avoid expensive lawsuits that risk costing them even more.”

• Policyholders—ordinary people and businesses—will end up paying the bulk of the added litigation costs in the form of higher premiums. “Opponents cite research projecting a jump of at least $7 billion a year. A similar third-party bad-faith law in Florida boosted bodily-injury costs 30 percent. In California, following a court ruling allowing such suits, premiums rose by between 32 percent and 53 percent.”

The other bill under fire would make targeting government agencies in class action lawsuits easier and allowable awards from these lawsuits higher. “If either of these bills passes, Gov. Cuomo will surely veto it pronto,” says the Post ed board, “if, that is, he puts the interests of average New Yorkers over those of greedy lawyers.”

You can read the full article here and below.

For more information and resources, visit fairinsure.org.

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New York Post Editorial Board: Legal sharks looking to feed off New York’s COVID-19 pandemic
 
New York trial lawyers, and the lawmakers who drool for their donations, see a fresh chance to cash in big on the coronavirus crisis with two horrific pro-lawsuit bills slithering through the Legislature that would wallop taxpayers, businesses and consumers.
 
One bill, which zoomed through two Assembly committees last week, would let private lawyers sue insurers based on vaguely defined “bad faith” claims and provide fat rewards if they prevail. It also invites third-party plaintiffs to sue.
 
That opens the doors to “every kind of damages that one could think of,” warns the American Property Casualty Insurance Association. The bill would also force insurers to pay the plaintiff attorneys’ fees and other costs.
 
This would lead to a mad rush of new cases — that’s the point. And because the bill contains no safeguards against meritless suits, insurers might simply pay bogus claims or bump up payouts just to avoid expensive lawsuits that risk costing them even more.
 
Indeed, “every two-bit lawyer will tack on one of these lawsuits to every insurance claim,” predicts Tom Stebbins of the Lawsuit Reform Alliance.
 
Don’t think insurers alone will bear the extra tab: They’ll pass most of the costs on to the people and businesses they insure — in the form of higher premiums. Opponents cite research projecting a jump of at least $7 billion a year.
 
A similar third-party bad-faith law in Florida boosted bodily-injury costs 30 percent. In California, following a court ruling allowing such suits, premiums rose by between 32 percent and 53 percent.
 
And the hit would come at a time when many New Yorkers are already suffering under the COVID-socked economy.
 
Meanwhile, policyholders who feel cheated by insurers already have the right to file claims with the state’s Financial Services commissioner.
 
The other bill’s just as bad: It would make it easier to target government agencies in class-action lawsuits — in which lawyers truly clean up — and boost allowable awards. With state and local tax revenues ravaged by the pandemic, this will mean new tax hikes or service cuts, or both.
 
If either of these bills passes, Gov. Cuomo will surely veto it pronto — if, that is, he puts the interests of average New Yorkers over those of greedy lawyers.

Real Clear Markets published an opinion piece by former U.S. Senator Ben Nelson (D-NE) today on the urgent need for the federal government to provide the critical relief needed by America’s small businesses. Senator Nelson previously served as the Director of the Nebraska Department of Insurance and as the Chief Executive Officer of the National Association of Insurance Commissioners (NAIC) from 2013 through 2016, making him a knowledgeable expert on this topic. 

In his opinion piece, Sen. Nelson recognizes:

• Global pandemics are uninsurable. “The cost of underwriting these pandemics would be massive for insurers—nearly $400 billion per month—which would make such coverage extremely, and likely prohibitively, costly for small business owners. Requiring insurers to pay out for uncovered claims would be unfair to other policyholders who already paid to have their claims insured and would threaten the ability of the industry to serve policyholders and lead to the collapse of the industry, especially as we enter the busy hurricane and wildfire summer season.”
  

• Litigation is distracting and a waste of time and resources for struggling small businesses. “BI litigation is not only unproductive and unnecessary, it is also a clear attempt to profit off small business owners and disrupt progress toward sustainable, government-backed solutions to the economic challenges our country is facing.”
  

• Amid this crisis, the federal government is the only entity able to truly help small businesses and our broader economy. “[O]nly the federal government has the financial capacity to provide the critical relief small businesses need today. I’ve witnessed first-hand debates regarding whether the government should intervene during an economic crisis. Given the scale of this pandemic and economic recession, a federal response is critical. The government has already taken steps to help provide safety nets for Americans and industries—from stimulus checks to bailout money—and continuing to support small businesses in need is merely the next step.”
  

You can read the full piece here and it is also copied below.

For more information and resources, visit fairinsure.org

Senator Ben Nelson: Taking Insurers to Court Won’t Help Business. Government Must Step In

The late, great Kenny Rogers had some pretty good advice that plaintiffs’ attorneys could heed today about knowing when to hold’em and when to fold’em. As a lawyer and former insurance commissioner and Senator, it is clear to me what our businesses don’t need right now: expensive, lengthy litigation. If we’re serious about getting meaningful relief for businesses across the country, it’s time for the trial bar to stop gambling and fold on these frivolous lawsuits against insurers that waste small businesses’ time and resources and get behind a substantial federal response to the economic hardship brought on by the COVID-19 pandemic.

Amidst the chaos of recent months, there have been no shortage of distractions preventing businesses from getting the help they need, including the ongoing litigation surrounding business interruption (BI) insurance policies. Since the first lawsuit was filed in Louisiana in March, hundreds of lawsuits have followed across the U.S., and more are expected to come. But these lawsuits are not only costly and drawn-out, they are also a distraction from the most important issue at hand: bringing key stakeholders together to find a viable solution to support businesses in the upcoming recovery. BI litigation is not only unproductive and unnecessary, it is also a clear attempt to profit off small business owners and disrupt progress toward sustainable, government-backed solutions to the economic challenges our country is facing.

Currently, BI policies are only activated when there is proof of direct physical property damage, The COVID-19 virus doesn’t trigger that claim. This standard was affirmed by a recent letter sent to the U.S. House of Representatives’ Small Business Committee by the National Association of Insurance Commissioners, explaining the pandemic “has highlighted that many existing BI policies have specific exclusions for viruses or other diseases, and coverage is generally only triggered by actual physical damage. Therefore, these policies were generally not designed or priced to provide coverage for claims arising from COVID-19.”

It’s important to keep in mind the decision to exclude pandemics from standard policies is not new. Following the SARS pandemic, the International Organization for Standardization, along with state insurance regulators and trade groups, introduced a virus policy exclusion in 2006 to ensure the solvency of the insurance industry wouldn’t be threatened by future pandemics like the one we face today.

The bottom line is, and as we are seeing now, global pandemics are uninsurable. The cost of underwriting these pandemics would be massive for insurers—nearly $400 billion per month—which would make such coverage extremely, and likely prohibitively, costly for small business owners. Requiring insurers to pay out for uncovered claims would be unfair to other policyholders who already paid to have their claims insured and would threaten the ability of the industry to serve policyholders and lead to the collapse of the industry, especially as we enter the busy hurricane and wildfire summer season.

All that is to state the obvious: only the federal government has the financial capacity to provide the critical relief small businesses need today. I’ve witnessed first-hand debates regarding whether the government should intervene during an economic crisis. Given the scale of this pandemic and economic recession, a federal response is critical. The government has already taken steps to help provide safety nets for Americans and industries—from stimulus checks to bailout money—and continuing to support small businesses in need is merely the next step.

I know the pain many business owners in Nebraska and across the U.S. are experiencing. The insurance industry has shown its commitment to helping customers get back on their feet where possible, but now is the time for Congress to do its part and get the country back to work. We can’t waste valuable time and resources on endless litigation that is unlikely to bring businesses the relief they need. With the right government-backed solutions, we can secure a much-needed safety net for business owners today and in the future.

E. Benjamin Nelson is a former U.S. Senator and Governor for the State of Nebraska, as well as the Director of the Nebraska Department of Insurance. He also served as the Chief Executive Officer of the National Association of Insurance Commissioners (NAIC) from 2013 through 2016. Sen. Nelson currently serves as CEO of Insurance Care Direct, a health and life insurance agency, and consults for other industry groups.

In case you missed it, a Michigan judge dismissed earlier this month COVID-19 business interruption claims brought by two restaurants. As this JD Supra article explains, the court found that business interruption (BI) policy only covers direct physical loss of or damage to property, and that since the policyholder alleged only loss of use of the restaurants, the policy did not apply. Most importantly, the judge further ruled that the policy’s virus exclusion would apply even if physical loss or damage had been alleged. 

Additionally, in response to policyholders’ attempt to circumvent the application of the virus exclusion by claiming that government orders, or civil authority—not COVID-19—caused the loss of use of the restaurants, the court was unequivocal in response: 

• This line of argument is “simply nonsense, and it comes nowhere close to meeting the requirement that there has to be some physical alteration to or physical damage or tangible damage to the integrity of the building.”

To get the facts on business interruption, visit fairinsure.org.

Earlier this month, former insurance regulator and legislator Howard Mills added his take to the current debate surrounding business income (interruption) insurance (BI). Mills argues that the important role of insurers in driving the economic recovery should not be jeopardized by proposals to retroactively rewrite BI policies. 

“These legislative efforts to abrogate insurance contracts, if successful, would destroy the property/casualty insurance industry, turning COVID-19 into something it is not: a solvency-threatening event for the American P/C industry.”

As the former New York state superintendent of insurance and former deputy minority leader of the New York State Assembly, Mills has a unique insight into both the insurance and policymaking worlds. He argues:

• Pandemics are uninsurable. “Pandemic is an excluded loss in the standard business interruption insurance policy because it is an uninsurable event. Business interruption insurance covers financial losses, such as lost income or operating expenses, when a business cannot function because of physical damage to a commercial property—think fire, hurricane, tornado or damage caused by civil unrest.”
  

• Efforts to rewrite BI policies would delay the recovery from COVID-19. “What those who would retroactively force insurers to cover pandemics through BI policies need to understand is that this would devastate industry surplus and jeopardize the financial stability of the property/casualty industry and further damage the U.S. economy and delay the recovery.”
  

• Proposals to force insurers to pay for uncovered risks are grounded in a lack of understanding of insurance, and would only serve to enrich trial lawyers. “As a former New York state legislator and superintendent of insurance, I was not surprised to see these ill-conceived attempts to hold insurers liable for risks they had not insured. The ‘deep pockets’ of insurers are a tempting target for those who may not have a deep understanding of how risk-transfer works—or in the case of trial lawyers, simply represent a gold mine of personal gain.”
  

Read Howard Mills’ full column here, via Best’s Review.

Recently, there has been a surge of policy proposals calling for action from the federal government to provide financial relief to businesses that have suffered losses due to the COVID-19 pandemic. This policy debate—happening among the insurance industry, policymakers, and other stakeholders—is critical as only the federal government has the financial capacity to cover losses from pandemics and to protect businesses from similar future events.
 
As a reminder, standard business interruption (BI) policies necessitate direct physical damage to cover claims and were never meant to cover pandemics, considering the scale of such an event. Forcing insurers to cover these losses would jeopardize the industry’s solvency and hence its ability to meet its promises to policyholders.

Here’s what stakeholder experts have said on the exclusion of pandemics from BI insurance:
 

• Attorneys General Mike Hunter of Oklahoma, Steve Marshall of Alabama, Doug Peterson of Nebraska, Kevin Clarskson of Alaska, Alan Wilson of South Carolina, Curtis Hill of Indiana, and Ken Paxton of Texas, in a letter to the White House: “The risk of pandemics is typically not included in the price of business interruption insurance policies. As the name would imply, those policies cover a business’s losses due to suspended operations. What may not be obvious from the name is that those policies typically require physical loss. This requirement exists because the policy is written and priced to cover events that cause direct physical damage, like fires or weather events.”
  

• David Sampson, American Property Casualty Insurance Association (APCIA) President & CEO: “Business interruption insurance covers the financial impact of an interruption to the normal course of business caused by physical damage to a commercial property, such as a fire. Since viruses, like COVID-19, do not cause physical property damage, they are not typically covered under this insurance. In the vast majority of cases, insurers did not price policies to include such coverage, and policyholders did not pay premiums to have this coverage.”
  

• John Dowd Jr., Dowd Agencies President & CEO: “Obviously COVID isn’t covered — the loss that triggers business interruption has to be the result of physical damage to the property. The problem with COVID is that’s not physical damage; it’s a virus. It’s specifically excluded, like other transmittable diseases. The way it’s worded, it’s not a coverage situation. As a matter of fact, the insurance industry cannot cover something like that because they can’t estimate the catastrophic potential of such a situation.”
  

• Larry Hogan, Maryland Governor: “Certain risks of loss are just too great for insurers’ underwriters to price at a level that allows for protection of basic insurance coverage needs to be affordable. For this reason, these types of risks have always been excluded from property and casualty insurance policies including the risks associated with pandemics and virus going back to the SARS and swine flu events of more than 10 years ago.”
  

• Mike Causey, North Carolina Insurance Commissioner: “Standard business interruption policies are not designed to provide coverage for viruses, diseases, or pandemic-related losses because of the magnitude of the potential losses. Insurability requires that loss events are due to chance and that potential losses are not too heavily concentrated or catastrophic. This is not possible if everyone in the risk pool is subject to the same loss at the same time.”
  

• Sean Kevelighan, Insurance Information Institute (Triple-I) CEO: “What we are experiencing economically is unprecedented as it is impacting every single state, and all of the economies within are being negatively impacted – at the same time. With that type of impact, it is not possible to offer insurance, and for this reason pandemics are not included in standard policies. For times like these, it is essential that we look to the government for assistance. Thankfully, the United States government has and continues to present financial relief for Americans.”
  

• Thomas Wade, American Action Forum (AAF) Director of Financial Services Policy: “At a fundamental level, the insurance industry is not designed to address such widespread problems as the coronavirus. Insurance works by pooling risk. The fact that policies against fire damage are so universal, combined with the fact that incidences of fire damage are relatively rare, allows the insurance industry to provide fire insurance payouts to those who need it at the cost of a low premium to the entire population that pays for it. Here, neither of those factors are true. Pandemic insurance is not widespread, but more crucially the impacts of the coronavirus are not localized. It would not be possible to build an insurance industry that might have to pay claims to the entire country at a single point in time.”
  

For more information and resources, go to fairinsure.org.

We wanted to make sure you saw the recent court ruling by Michigan’s 30th Circuit Court that sided in favor of insurers and rejected restaurants’ business interruption claims, as covered in the Insurance Journal. 

With Judge Joyce Draganchuk stating that the virus did not cause physical damage to the plaintiffs’ property, this ruling is a definitive outcome in that insurers are not liable for financial damages caused by virus closure orders. This marks the second ruling in as many months to chart the historic legal precedent set years prior, along with several other instances of cases already being withdrawn. The judge’s interpretation is consistent with the approach of other states and should play a pivotal role in shaping future decisions. 

A few key highlights from the case are below: 

• “Draganchuk rejected the central argument made by plaintiff’s attorney Matthew Heos: that the government order that restricted business to dine-in only amounts to a physical loss because the order effectively blocks public entry to the property. ‘That argument is simply nonsense,’ [Judge Draganchuk] said.”
  

• “‘There has to be something that physically alters the integrity of the property,’ she said. ‘There has to be some tangible, i.e. physical, damage to the property.'”
  

• “Draganchuk recited one of [the insurance industry’s] main points during her oral ruling — that the virus harms people, not property.”
  

For more information and resources, go to fairinsure.org.

Former New York state superintendent of insurance Howard Mills shared his perspective with Best’s Review on the importance of a strong insurance market for the U.S.’ economic recovery from the pandemic. Similarly, Forbes contributor Joshua Stein published an article explaining business interruption (BI) insurance and why contracts do not cover pandemic losses. The articles shed light on the following key points:

• Standard business interruption insurance policies necessitate direct physical damage to property and are not designed to cover losses from pandemics.
  • “Pandemic is an excluded loss in the standard business interruption insurance policy because it is an uninsurable event. Business interruption insurance covers financial losses, such as lost income or operating expenses, when a business cannot function because of physical damage to a commercial property—think fire, hurricane, tornado or damage caused by civil unrest,” writes Mills. “These losses, which insurers pay out claims for every year to re-build American businesses, are limited to specific areas and time frames and thus make the spreading of risk possible and, as a result, business interruption insurance is readily affordable. This is how insurance works.
  • “Business interruption coverage is not a stand-alone insurance policy that covers just any interruption of business. If such a policy were to exist, how would one define the interruptions of business that trigger coverage?” reports Stein. “It’s just not practical for an ordinary property insurance policy to cover every possible business interruption, except one arising from direct physical loss.”
    

• Retroactively forcing insurers to cover losses from pandemics threaten the solvency of the market, hence prohibiting it from covering existing contracts and helping rebuild the economy.
  • “What those who would retroactively force insurers to cover pandemics through BI policies need to understand is that this would devastate industry surplus and jeopardize the financial stability of the property/casualty industry and further damage the U.S. economy and delay the recovery. Business owners would not have the ability to purchase affordable BI insurance and would be deprived of coverage when non-pandemic disaster strikes,” says Mills.
  • “Any such retroactive rewrite of insurance policies would be just like retroactively revising a construction contract to say that the contractor must build a two-story house instead of the one-story house the contract required, but the contractor can’t charge a penny more for the extra work. It makes no sense at all,” reports Stein.
    

• Trial lawyers are looking to exploit a “gold mine of personal gain” with “ill-conceived” lawsuits targeting insurers instead of meaningful relief for small businesses.
  • “As a former New York state legislator and superintendent of insurance, I was not surprised to see these ill-conceived attempts to hold insurers liable for risks they had not insured. The “deep pockets” of insurers are a tempting target for those who may not have a deep understanding of how risk-transfer works—or in the case of trial lawyers, simply represent a gold mine of personal gain,” shares Mills.
    

For more information and resources, go to fairinsure.org.