Issue: Insurance & Global Pandemics

The COVID-19 pandemic has brought significant disruptions to the U.S. economy, particularly to its business owners suffering from unsustainable income losses. FAIR’s new one-minute video highlights the role the insurance industry has upheld throughout the crisis and explains how trial attorneys’ attempts to retroactively include the uninsurable pandemic risk in business interruption insurance contracts are detrimental to policyholders, communities, insurers, and economic growth. 

Only the federal government has the financial capacity to provide the critical pandemic relief business-owners need today and to protect them from such events in the future.

The video can be viewed here. For more information and resources, go to fairinsure.org. 

In another substantial development in business interruption (BI) litigation, a District of Columbia Superior Court judge ruled that COVID-19 does not lead to physical property damage, arguing that the plaintiffs’ business insurance policy is not triggered because the shutdown did not amount to direct physical loss.

The judge reiterated what insurance contracts make clear: standard BI policies require “direct physical loss or damage” to the business–or structural alteration–such as in a fire, or for a civil authority to close off the area to a business nearby. The coronavirus leaves no visible imprint or structural alteration, and therefore does not trigger BI coverage.

The case ruling pointed out the following:  

• To trigger the policy, the “loss” has to directly impact the property itself. While plaintiffs in this case argued that the civil orders were the “direct” reason for the closing, “the judge wrote that the orders only directed businesses to take certain actions but did not effect any direct change to the properties in and of themselves.” (LAW360, 8/7)
  

• The judge also stated plaintiffs “failed to put forth any cases supporting their contention that a mayoral order constitutes direct physical loss under an insurance policy,” instead citing several cases where courts have rejected coverage where there was no direct physical harm to the properties. (Insurance Journal, 8/7)
  

• While the plaintiffs argued that the losses were physical because COVID-19 is “material” and “tangible” rather than abstract, “the judge found the plaintiffs offered no evidence that the virus was present in their inured properties and found that the mayor’s orders did not have any material or tangible effect on the insured’s properties.” (Insurance Journal, 8/7)
  

This latest verdict follows a July Michigan state court ruling that also sided with insurers, finding that tangible alteration to a property is required to trigger BI coverage. 

For more information, visit fairinsure.org. 

Industry experts and economists discussed the impact of COVID-19 on workers compensation in a recent webinar hosted by the National Council on Compensation Insurance (NCCI) and the Insurance Information Institute (Triple-I).A few key takeaways:

• Covid-19 has both direct and indirect impact on workers compensation insurance. Sean Cooper, Practice Leader and Senior Actuary at NCCI, argues that direct COVID claims will have an upward influence on claim costs and frequency, while limited opportunities of returning to work could increase both the cost and duration of claims.
  

• Common presumptions resulting from proposed legislation and state executive orders are rebuttable. “Workers compensation laws cover injuries arising out of and in the course of employment,” said Jeff Eddinger, Senior Division Executive at NCCI. Although it is reasonable to presume that healthcare workers who come in direct contact with COVID patients contracted the virus during the course of their employment, it is important to determine whether other essential workers receive more exposure from work or in public.
  

• A pandemic catastrophe provision could be a solution to workers compensation insurance in future pandemics. “Traditional methods of calculating estimated impact do not necessarily apply to catastrophic events that have very low frequency and very high severity,” concluded panel experts. NCCI is currently engaging with an external modeling firm to determine if a pandemic catastrophe provision would be appropriate for future filings.  
  

You can watch the full webinar here and event highlights here. NCCI also published a white paper on the potential impacts of COVID-19 on workers compensation and enumerated various scenarios in its rates estimation tool.

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

As you may be aware, attorneys nationwide are pursuing widespread litigation against insurers, in an attempt to contort business interruption (BI) policies to cover businesses’ losses from the coronavirus pandemic.

As the insurance regulation expert and former Senator of Nebraska Ben Nelson explains in a recent op-ed, these lawsuits are misguided as the focus should be on passing government-backed pandemic relief—the viable solution struggling businesses need.

Below are key points from Sen. Nelson:

• 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.”
  

• The litigation trend is distracting and a waste of 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 with the capacity to support small businesses and the 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 op-ed here. This post can be viewed here, and for more information and resources, visit fairinsure.org

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.