Issue: Insurance & Global Pandemics
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.
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.
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.
Two recent court rulings reaffirm that business interruption (BI) policies are not designed to cover pandemics; A direct physical loss is necessary to be eligible for a BI claim.
On September 11, a California federal judge, U.S. District Judge Cathy Ann Bencivengo, ruled in the U.S. District Court for the Southern District of California that two barbershops were not eligible for a business interruption insurance payout. U.S. District Judge Bencivengo, in her ruling, cited the growing list of rulings in favor of insurers in similar cases on the issue of BI coverage.
On September 14, in a similar California suit, another California federal judge ruled that San Francisco retailer Mudpie Inc.’s business losses during the pandemic are not eligible for a BI claim. When dismissing the plaintiff’s claim, U.S. District Judge Jon S. Tigar noted that government stay-at-home orders were not enough to warrant a claim, considering the plaintiff suffered “no permanent loss of its property, so once the orders are lifted, the retailer will get its property back without any need to repair, replace or even disinfect the site.”
These two court decisions lengthen the list of rulings that prove 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, visit fairinsure.org.