Issue: Insurance & Global Pandemics

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.