Tag Archives: covid-19 business interruption

Chubb CEO says business interruption policies are a good value and work as they should

Evan Greenberg

In a July 29 earnings call Evan Greenberg, the CEO of Chubb, addressed the lawsuits filed by many businesses over business income (interruption) coverage during the COVID-19 pandemic. He stressed that even though business interruption (BI) policies do not cover a pandemic, they are a good value and work as intended.

“Standard BI policies, which are an addendum to a fire policy, require direct physical loss or damage to the property, for example, a fire or flood damages the property and prevents the business from operating while repairs are being made.  COVID-19 does not cause physical loss or damage to a property, despite the trial bar’s efforts to influence some government officials in the wording of their civil public shutdown orders,” he said.

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.

The comments appear in their entirety below.  

Remarks from Evan Greenberg, Chubb Second Quarter Earnings Call, July 29, 2020

I am going to say a few words about the business interruption issue that I know is on the minds of many.  As you know, the insurance industry is under attack by the trial bar over business interruption claims.  They represent 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. 

Coverage for a pandemic was never contemplated in standard business interruption policies, and therefore no premiums were ever charged for that risk.  In fact, 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.

Standard BI policies, which are an addendum to a fire policy, require direct physical loss or damage to the property, for example, a fire or flood damages the property and prevents the business from operating while repairs are being made.  COVID-19 does not cause physical loss or damage to a property, despite the trial bar’s efforts to influence some government officials in the wording of their civil public shutdown orders. 

Though it doesn’t cover pandemic, standard BI coverage provides good value for the money.  We estimate the industry pays out about 70 cents in insurance claims for every business interruption protection dollar collected, with most of the remaining amount paid in commissions, premium taxes and other expenses.   For Chubb, in addition to our normal losses this year, we will pay BI claims for policies that specifically covered certain pandemic-related shutdowns such as those for the entertainment industry.

We care deeply about properly supporting and servicing all of our policyholders, and I have particular sympathy for the millions of businesses that have suffered terribly during the pandemic-forced economic shutdowns.  But 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. 

To provide some context, in 2019, Chubb paid $24 billion on approximately four million property and casualty claims.  Again, to pay billions of dollars in uncovered claims by raiding the reserves or capital needed to pay claims on other kinds of policies, such as auto and home, commercial insurance exposures, or respond to natural catastrophes such as hurricanes and wildfires, would be irresponsible to the vast majority of our policyholders and to our shareholders.

Beyond the business interruption challenges of the current COVID-19 crisis, the insurance industry has an important role to play in society and in the economy, and that includes fully participating in the development of a prospective future pandemic business interruption solution should crises arise.  Earlier this month, Chubb released its Pandemic Business Interruption Program designed to mitigate the economic disruption and losses in the event of a future pandemic.

Our framework is not the first plan to be introduced. But the public-private partnership framework we developed has important differences from the other leading proposals. By sharing our ideas and approach, we hope to spark and influence a productive debate on a solution that will work for businesses of all sizes, taxpayers, our industry and the economy more broadly.

First and foremost, I believe the industry can and should take pandemic risk along with the government.  This is a peril that can be covered to a greater degree than we do today as long as the tail exposure is covered by the government.  It’s our job to figure out how to do that.  We can do more than simply play an administrative role or we belittle ourselves and we’re less relevant than we can or should be. 

The framework we announced has attributes that we believe will make for a successful program.  It accounts for the different needs of small, medium and, to a modest degree, large businesses. Premiums for small business will be affordable and they will be paid quickly. Larger companies would pay a fair and risk-adjusted price to both the government and insurers for pandemic cover in a program built on free-market principles.  The government gets paid for the use of its balance sheet – it’s not a handout to larger companies.

Our framework has incentives for broad participation by the industry. And by committing insurance industry capital and providing opportunity for increased risk-sharing over time as direct and secondary markets develop, the pandemic burden shouldered by the government will ultimately be lessened to a degree.

This is an important issue for our nation.  We look forward to contributing to the dialogue as policymakers work to refine the most effective solution.

Gauging Pandemic’s Impact on Insurers

While COVID-19’s impact on the insurance industry will require time to fully understand, litigation, legislation, and concerns about pricing and policy language will be with us for some time to come.

“Significant” changes in policy language seen

The majority of respondents to an Artemis re/insurance market survey believe the COVID-19 pandemic will result in “significant changes” to business interruption (BI) policy wordings.

In fact,  the U.K. Financial Conduct Authority (FCA) is conducting a review focused on obtaining legal clarity on policies connected to the pandemic and which claims are valid and which aren’t.

FCA’s Interim CEO Chris Woolard said recently that while some BI policies are paying out for virus-related issues, others remain “within dispute” due to ambiguities in their wordings.

Outside of the 67.6% who stated a belief that COVID-19 will drive “significant changes” in BI policy wordings, 21.6% expect a “moderate amount” of change, while the remaining 10.8% said the effect will be “limited.”

Loss estimates vary

The Artemis survey also shows 67% of respondents expect the industry to face between $80 billion and $100 billion of underwriting losses due to the pandemic. This is roughly in line with Lloyd’s of London’s earlier estimate of a $107 billion global industry impact.

But analysts from investment bank Berenberg said they believe global COVID-19 claims will be more manageable, estimating a range from $50 billion to $70 billion for the total bill. The analysts don’t specify whether this includes both life and non-life insurance claims from the pandemic, but they do point to the estimate from Lloyd’s of London as being too high.

“We estimate $50-70bn for global COVID-19 claims,” Berenberg’s analysts state. “Significantly less than the $107bn estimate reported by the Lloyd’s of London market estimate on 14 May.”

Las Vegas Hospitality Union Sues Employers

Las Vegas Culinary Workers Union Local 226 is suing several employers on the Las Vegas strip over unsafe working conditions during the coronavirus pandemic, Business Insurance reported.

The union, representing 60,000 workers, said in a statement it is asking for injunctive relief under the Labor-Management Relations Act based on the “hazardous working conditions” workers face.

The lawsuit alleges casino hotels have not protected workers, their families, and their community from the spread of COVID-19 and that current rules and procedures in place for responding to workers contracting COVID-19 have been “wholly and dangerously inadequate.”

The Culinary Union made a number of requests for policy changes, including daily cleaning of guest rooms, mandatory testing of all employees for COVID-19 before returning to work and regular testing thereafter, adequate personal protective equipment for workers, and a requirement that guests wear face masks in all public areas.

Best Warning on COVID-19 Workers’ Comp Laws

Insurance rating agency A.M. Best has warned that legal efforts in several U.S. states to expand workers’ compensation coverage to allow employees to claim for COVID-19 will have a negative impact on re/insurers, Reinsurance News reports.

The crisis has resulted in many employees now working from home, but a significant part of the workforce still needs to be present and public facing, and this is the group new state laws aim to support. For these workers, some states are looking to shift the burden to the insurer to prove that an employee contracting COVID-19 did not do so while on the job.

“This shift in the burden of proof could lead to significant additional losses to a segment already under pressure and result in increased reserve estimates and higher combined ratios,” A.M. Best said.

Given that assumptions used in pricing and actual loss emergence diverge significantly, these legislative changes will result in an increase in loss estimates and could affect earnings.

Businesses Ask Patrons to Waive Right to Sue

As businesses reopen across the U.S. after coronavirus shutdowns, many are requiring customers and workers to sign forms saying they won’t sue if they catch COVID-19, Associated Press reported.

Businesses fear they could be the target of litigation, even if they adhere to safety precautions from the Centers for Disease Control and Prevention and state health officials. But workers’ rights groups say the forms force employees to sign away their rights should they get sick.

So far, at least six states — Utah, North Carolina, Louisiana, Oklahoma, Arkansas and Alabama — have such limits through legislation or executive orders, and others are considering them. Business groups such as the U.S. Chamber of Commerce are lobbying for national liability protections.

Bad Faith and Business Income Interruption Policies During the Coronavirus Pandemic

By Max Dorfman, Research Writer, Insurance Information Institute

A new and risky legal precedent could be set as the coronavirus pandemic continues to roil the U.S. economy. A growing number of policyholders say that insurers are acting in bad faith when they deny claims for losses sustained during shutdowns.

While business income interruption coverage typically covers physical damage to a property, some businesses believe the potential presence of the virus on their property or in their community is equivalent to physical damage.

Business income interruption exclusions for pandemics date back to the 2002-2003 SARS epidemic, when insurers realized that the risk of such a massive health crisis would be impossible to credibly quantify, and thus impossible to absorb.

In several recent articles, some plaintiffs’ attorneys have accused insurers of acting in bad faith by issuing quick denials without properly investigating their claims. “Quite frankly, the prevailing law on the insurance policies is that coverage is supposed to be interpreted broadly and exclusions are supposed to be interpreted narrowly,” said William Shernoff, a founding partner of California-based Shernoff Bidart Echeverria LLP, which specializes in representing policyholders in claims against insurance company denials. Shernoff also stated that any inconsistency in a policy means it’s ambiguous and would result in a decision favoring the plaintiffs.

Michael Menapace, an insurance lawyer and a Triple-I non-resident scholar, disagrees. “They’re trying to recast what the damage is from the policy trigger of “direct physical loss of or damage to property” to a broader concept of “loss of use,” which term does not appear in most policies. They’re also going to claim that somehow the entire insurance industry tricked policyholders by sneaking in the virus exclusion. There is a tension between the plain meaning rule [what the exclusion literally states], and the doctrine of reasonable expectations [the way someone who is not trained in the law would interpret them].” He continued, “When an insurance company denies a claim, they may get the decision wrong – but it doesn’t mean they denied it in bad faith.” Menapace adds that the virus exclusion has not been tested in the courts on any large scale since its adoption in 2006. “There’s so little case law on virus exclusions during pandemics, I have a hard time believing insurers are acting in bad faith.”

There are many reasons for the insurance industry not to act in bad faith under these circumstances. An insurer that is deemed to have acted in bad faith can be liable for damages that are greater than the policy limits, including but not limited to interest, emotional distress, consequential economic losses, attorneys’ fees and punitive damages.

Menapace also makes the point that business income interruption claims from a pandemic would rapidly deplete insurers’ reserves and surplus that are needed for covered losses such as those from hurricanes and other perils. “We can insure certain events because there is a spreading of risk,” saidMenapace. “If everyone has the same loss at the same time, like from a pandemic, we lose the fundamental aspect of insurance, which is risk spreading.”

Much depends on how the courts interpret the exclusions. “Insurers said they were not going to cover damage due to pandemics. There is going to be new law created. It depends whether the courts will read the plain meaning of the exclusion, or if they’ll interpret some of the creative arguments of the plaintiffs.” If these contracts will retroactively favor the insured, Menapace added, it could force insurers to stop covering business income interruption in any scenario, as the costs would simply be too great. And that would be truly bad for policyholders and insurers alike.

Triple-I CEO Tells U.S. House—Global Pandemics Are Uninsurable

On May 21, Triple-I CEO Sean Kevelighan testified before the U.S. House of Representatives’ Small Business Committee on the subject of business interruption coverage.

Since the outbreak of COVID-19, some legislators and advocates have pushed for policies that would retroactively force insurers to pay for claims their insurance policies were not priced to cover. The U.S. House session, “Business Interruption Coverage: Are Policyholders Being Left Behind?,” gave members of the committee the opportunity to hear from policyholders and other interested stakeholders.

“An event like a global pandemic is uninsurable,” said Kevelighan in his statement. “Unlike a typical covered catastrophe, which is limited in terms of geography and time, pandemics have the potential to impact everywhere, all at once…. As such, this type of magnitude requires government resources to step in and provide support.”

Property business insurance, in general, is meant to cover physical damage from perils like fire, tornado, or hurricane,” he said. Forcing insurers to cover losses related to the pandemic – which don’t involve physical damage to property – would cost the industry between $150 billion to $400 billion per month.

“Make no mistake; retroactive business interruption payouts would bankrupt insurers,” said Kevelighan.  “A recent Triple-I economic analysis determined this type of approach would decimate the industry’s financial resources in a matter of months, and at a time it needs those monies for major natural disasters that insurance policies cover, such as tornadoes, hurricanes, and wildfires.”

 “Any efforts to retroactively rewrite business interruption policies are not only unconstitutional (Article I) but would imperil the insurance industry’s ability to pay covered insurance claims filed by American homeowners, drivers, and injured workers,” Kevelighan said.

“The current government shut-down orders do not trigger the vast majority of standard business interruption policies because those orders do not qualify as direct physical loss to property—a requirement under the policies,” he said.

“The insurance industry is stepping up for Americans, with the likes of $10.5 billion in personal auto insurance premium relief, $220 million in charitable donations, and even more by keeping nearly two million Americans employed so insurance customers will be covered, and have their claims handled, when other disasters strike,” Kevelighan concluded.

View the full testimony and a recording of the webcast here.

The insurance industry is united in its position that pandemics are uninsurable, and the industry has some formidable support in that view. In a letter to the committee, the National Association of Insurance Commissioners (NAIC) said: “The current COVID-19 crisis has highlighted that many existing business interruption (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.”

The NAIC letter said that the group opposes efforts to legislatively apply business interruption coverage retroactively to claims based on COVID-19 and “has serious concerns that requiring retroactive coverage of BI claims based on COVID-19 would pose significant risks to the solvency of insurance companies and could have systemic impacts on the industry as a whole and potentially the financial system.”

And in a letter to President Trump on May 18, six Republican Senators warned that altering insurance law to cover all pandemic claims under business interruption policies would devastate the capital reserved for paying other insurance claims.

COVID-19 Wrap-Up:
BI Coverage Continues
to Make Headlines

From new litigation to proposed legislation, debate over whether insurers should be required to pay for business losses related to the coronavirus pandemic remain in the news. 

Restaurants Sue Insurers Over Business Interruption Claims  

Proprietors of more than 10 restaurants, bars, and bakeries in Washington, D.C., joined a growing list of restaurateurs seeking coverage for pandemic-related damages, The Washington Post reports.   

The Post interviewed Triple-I CEO Sean Kevelighan and Triple-I non-resident scholar Michael Menapace, who explained why the suits are unreasonable and threaten the insurance industry’s solvency. 

“The insurance business works by spreading risk around so the industry isn’t hit all at once with claims,”  Kevelighan says. “A pandemic disrupts business far and wide, with no end date in sight.” 

About 40 percent of all companies have business interruption insurance, and most policies do not cover COVID-19.  If lawmakers retroactively require carriers to pay these unplanned-for claims, it could cost the insurance industry $150 billion a month, which would quickly deplete its $800 billion surplus. 

Policyholder Pulls COVID-19 Suit Against Broker, Insurer Business Insurance May 20, 2020 

Insurance Speak: Business Interruption Claims and COVID-19 Property/Casualty 360, May 20, 2020 

COVID-19 and Business Interruption Insurance – How to File a Claim the Right Way Franchising.com, May 19, 2020 

Coronavirus Pandemic Threatens Run on Business Interruption Policies Sold by Captive Insurance Risk Pools Forbes.com, May 19. 2020 

California Music Venues Sue Insurer over Business Interruption Related to COVID-19 Insurance Journal, May 15, 2020 

La. Lawmakers Scrap Business Interruption Bill

Louisiana lawmakers scrapped a bill that would have forced insurers to cover retroactive business interruption claims due to COVID-19, Business Insurance reports

However, state senators agreed to rewrite and amend Senate Bill 477 to allow a proposal requiring insurers to clarify exclusions on business interruption policies to move ahead. 

The scrapping of the Louisiana proposal follows last week’s decision by the Council of the District of Columbia not to go ahead with a proposal to force insurers to provide retroactive business interruption coverage on small-business COVID-19 claims. 

Coronavirus Updates in Louisiana: 35,038 COVID-19 Cases, 2,458 Deaths, WDSU 6, New Orleans, May 19, 2020 

Dozens of Workers at 3 Louisiana Crawfish Farms Test Positive for COVID-19, 4 WWL, New Orleans, May 19, 2020 

Red Flags Found at Louisiana Nursing Homes Ravaged by Coronavirus, NOLA.com, May 19, 2020 

Pa. Bill Would Define COVID-19 as Property Damage 

The Pennsylvania Senate is weighing a bill that would include losses spurred by the COVID-19 global pandemic under property and business interruption insurance coverage, Property/Casualty 360 reports. 

Senate Bill 1127 doesn’t explicitly state that insurers must cover COVID-19 business interruption claims. The bill states that if a covered property is located within a municipality where “the presence of the COVID-19 coronavirus has otherwise been detected,” that property is “deemed to have experienced property damage.” 

It also states that Gov. Tom Wolf’s March 19 emergency order to close businesses is to be considered an order of civil authority under a first-party insurance policy which limits, prohibits, or restricts access to non-life-sustaining business locations “as a direct result of physical damage at or in the immediate vicinity of those locations.”  

Coronavirus: 63,666 cases of COVID-19 in Pennsylvania, WGAL News 8, May 20, 2020 

Nursing Homes in Southeast Pa. Hit Hard By Coronavirus Deaths, New Data Shows, NBC 10 Philadelphia, May 20, 2020 

Pa. Releases Names of Nursing Homes with Coronavirus Cases, DeathsPhiladelphia Inquirer, May 19, 2020 

Pa. Supreme Court Rejects Emergent Application to Consolidate COVID-19 Business Interruption Claims JDSupra.com, May 19, 2020 

Pa. Insurance Commissioner Warns Businesses of Increased Liability Risks If Defying Coronavirus Shutdow Orders KDKA 2, Pittsburgh, May 11, 2020 

Publisher Appeals COVID-19 Ruling Denying Coverage 

A magazine publisher is appealing a federal court ruling in favor of an insurer in a coronavirus-related business interruption dispute, Business Insurance reports

In one of the first court rulings on the business interruption coverage issue, U.S. District Court Judge Valerie E. Caproni, in the Southern District of New York, said the policyholder’s attorney deserved “a gold star for creativity” but the loss was not covered under the policy issued by the unit of Hartford Financial Services Group Inc. 

From the Triple-I Blog

REQUIRING INSURERS TO COVER PANDEMIC-RELATED SHUTDOWNS WOULD JEOPARDIZE INDUSTRY’S SOLVENCY, EXPERTS SAY

TRIPLE-I LAUNCHES CAMPAIGN TO SUPPORT RESILIENCY OF THE ECONOMY DURING THE CORONAVIRUS PANDEMIC

WEBINAR: BUILDING RESILIENT BUSINESSES AND COMMUNITIES IN THE TIME OF COVID-19

U.S. TREASURY WEIGHS IN ON DEBATE SURROUNDING BUSINESS INTERRUPTION INSURANCE

WORKERS COMP, LIABILITY NEXT UP FOR VIRUS-RELATED INSURANCE DISPUTES

Requiring insurers to cover pandemic-related shutdowns would jeopardize industry’s solvency, experts say

Most insurance experts believe legislative proposals that would require insurers to cover business-interruption (BI) claims stemming from COVID-19 related shutdowns, even if the insurance policies exclude pandemic-related losses, threaten the solvency of the insurance industry. This is the finding of a survey conducted by the Wisconsin School of Business and the Center for Insurance Policy and Research of the National Association of Insurance Commissioners (NAIC).

The survey also found most experts believe the private market will have a difficult time efficiently supplying BI coverage for pandemics, given the systemic, correlated, and non-diversifiable nature of the peril.

Many survey respondents felt only the federal government can provide coverage for correlated risks because it can spread the cost through taxation, long-run borrowing, and deficit financing. But whether provided by only the federal government or the private market, the pricing and affordability of coverage were indicated to be issues for both.

Most said they believe the private market can supply BI coverage for pandemics with an effective federal partnership. Some questioned whether the Terrorism Risk Insurance Program (TRIP) is a good model for pandemic insurance, given the similarities between the pandemic and terrorism perils.

The complete survey can be found here.

Triple-I Launches Campaign To Support Resiliency Of The Economy During The Coronavirus Pandemic

On May 18 the Insurance Information Institute (Triple-I) announced the launch of the Future of American Insurance & Reinsurance (FAIR) campaign. FAIR will focus on ensuring the insurance industry is able to sustain its longstanding role as the country’s backbone of economic growth and stability.

FAIR is being set into motion as the country seeks a pathway to economic recovery in the wake of the COVID-19 pandemic. As communities reopen and restart, insurers will play a critical role in the process, continuing to provide financial protection for the millions of Americans who depend on them for indemnification from risks they rightfully insured. Yet the industry is threatened with growing calls to retroactively alter insurance policies, cover the economic cost of widespread closures, and adjust workers’ compensation criteria, among other new developments.

Sean Kevelighan

“FAIR was created to safeguard the ability of the insurance industry to support its customers at a time when policymakers, the business community, and the general public are searching for solutions to our ongoing economic turmoil. And while we recognize the need for financial relief is severe, any attempts to make insurers retroactively responsible for a global pandemic puts the solvency of many insurers at risk,” said Sean Kevelighan, CEO, Triple-I.

“While the insurance industry has been doing its part to step up and support their communities in this time of crisis, pandemics are fundamentally uninsurable events. The federal government remains the only entity with the financial resources to help businesses recover from a systemic event of this magnitude. With the support of the public sector and the innovation of groups like insurers in the private sector, we can come together to work toward recovering from this catastrophe and build a more resilient future,” he added.

Insurance carriers are an integral part of local communities across the country, employing over 2.7 million Americans and contributing nearly $565 billion to the nation’s Gross Domestic Product (GDP) in 2018. The industry has cumulatively offered consumers more than $10 billion in premium relief on auto insurance this spring and made over $220 million in charitable donations to COVID-19-related causes.

FAIR will serve as a go-to educational resource for the media, business community, and broader public in the coming weeks and will actively engage in a variety of insurance and COVID-19-related developments across America.

For more information visit fairinsure.org and follow @FAIRInsure on Twitter.

U.S. Treasury weighs in on debate surrounding business interruption insurance

The U.S. Treasury Department issued a letter to members of Congress on May 8 which argued that proposals to force insurers to retroactively change business interruption (BI) policies to pay losses arising from the COVID-19 pandemic threaten the ability of the industry to serve policyholders and might lead to the insolvency of the industry.

In the letter, Principal Deputy Assistant Secretary for Legislative Affairs Frederick Vaughan writes: “While insurers should pay valid claims, we share your concerns that these proposals fundamentally conflict with the contractual nature of insurance obligations and could introduce stability risks to the industry.”

He goes on to say that the Treasury will collaborate with insurer groups, federal lawmakers and states on “addressing losses attributable to the current and potential future pandemics.”

Business Interruption Coverage: Policy Language Rules

Whether business interruption coverage in property policies applies to COVID-19-related losses has become one of the dominant insurance debates during this pandemic. Lawsuits have been filed – some even before insurers have denied a claim – seeking to establish that policyholders are entitled to coverage for losses sustained during the current shutdowns. 

The debate often focuses on a simple phrase in the insurance policy: “direct physical loss or damage.” Business interruption coverage can apply to losses stemming from direct physical loss or damage. Losses that didn’t come from direct physical damages aren’t covered.

Michael Menapace, Esq.
Wiggin and Dana LLP

 “A property policy may, for example, pay to repair the damage caused by a fire and may cover the loss of business during the reconstruction period,” writes Michael Menapace, a professor of insurance law at Quinnipiac University School of Law and a Triple-I Non-Resident Scholar. “But here’s the rub.  Are the business interruptions related to COVID-19 caused by physical damage to property?”

Insurers say no, arguing that “damage to property” requires structural alteration like one would find in a typical claim, where, say, a fire destroyed the interior of a building or wind damaged windows and furniture.

The virus, on the other hand, leaves no visible imprint. Left alone, it can’t survive long and, after it has perished, whatever it was attached to is as good as before. Even if some remediation is needed – like cleaning metal surfaces – insurers might argue that this is no different from cleaning dirt off a surface. They cite cases in which judges have ruled there’s no physical damage from mold if the mold can be cleaned off.

Departing from common sense

Others depart from this common-sense, legally recognized definition. Some plaintiffs’ attorneys argue that if coronavirus is not direct physical damage then insurers would not have created an exclusion for viruses in the first place. Many insurers added exclusions for losses from viruses and communicable diseases after the SARS outbreak in 2003. 

Policy language, Menapace says, controls whether COVID-19 interruptions are covered. Some policies have standard terms and exclusions, some provide “all-risk” coverage – covering loss arising from any fortuitous cause except those specifically excluded – and others are variations on these types.

“The threshold issue will be whether the insureds can prove their business losses are caused by ‘physical damage to property’,” he writes. 

In past cases, where there is direct physical loss to property – such as contaminated food that couldn’t be sold or a building rendered useless by asbestos contamination – courts have found business interruption coverage was triggered. But when an earthquake caused a power loss in two factories, courts found the only injury was a shutdown of manufacturing operations that didn’t constitute “direct physical loss or damage.” 

What About Current Claims?

Are business interruptions related to COVID-19 the result of the government restrictions, or are they due to the physical loss to their property?  Menapace writes that many of the current claims would seem not to trigger the standard coverage in a commercial business interruption policy, but he cautions that this might not always be the case.

A true “all-risk policy,” he writes, “generally would not distinguish between business interruption losses due to government action or direct physical loss because all-risk policies cover all losses except those specifically excluded.”

But most commercial property policies aren’t true “all-risk policies”; instead, they typically cover business interruption losses “caused by direct physical damage to property” at or near the insured premises. 

“That will be difficult burden for policyholders to meet,” Menapace says.

Some policies exclude coverage for losses resulting from mold, fungi, or bacteria.  Because COVID-19 is a virus, that exclusion might not apply. Other policies exclude viruses, diseases, or pandemics. 

“If a policyholder believes it may have a claim,” Menapace advises, “it should provide prompt notice to its insurer(s) so it does not risk a denial based on late notice. Likewise, once the claim has been made, it is essential that the insured cooperate with the insurer, including providing timely proof of loss.”

Resources:

Business Income (Interruption): Key Facts

The True Cost of Rewriting Business Income (Interruption) Policies

Triple-I Briefing: Surplus Is Key to Insurers Keeping Policyholder PromisesISO Excluded Coronavirus Coverage 15 Years Ago

Economy Starts Reopening Amid New Pandemic Projections

Business interruption insurance and liability issues remain on the front burners as governments begin gradually “reopening the economy” amid scary new projections about the pandemic.

Trump Says Task Force Will Wind Down (The New York Times, May 5, 2020)

Pennsylvania’s Coronavirus Death Toll More Than Tripled in New Projection (Lehigh Valley Live, May 5, 2020)

Models Project Sharp Rise in Deaths as States Reopen (The New York Times, May 4, 2020)

D.C. Business Interruption Insurance Move on Hold

A measure that would make it easier for small businesses in Washington, D.C. to claim coronavirus-related damages under business interruption insurance policies is on hold after six of the 12 D.C. Council members raised concerns about its legality and the costs it could impose on insurers.

Council Chairman Phil Mendelson struck the language from a broader pandemic emergency bill to allow for more debate. Councilman Charles Allen had spearheaded the measure after many small businesses have seen their insurers deny such claims.

The American Property Casualty Insurance Association estimates local businesses could claim losses of hundreds of millions of dollars each month.

“These numbers dwarf the premiums for all relevant commercial property risks in the key insurance lines for D.C., which are estimated at $16 million a month,” David Sampson, the association’s president and CEO, wrote in a statement. “We oppose constitutionally flawed legislation that retroactively rewrites insurance contracts and threatens the stability of the sector, to the detriment of all policyholders.”

Lloyd’s Syndicate Slams ‘Direct Physical Loss’ Claim in COVID Suit (Business Insurance, May 6, 2020)

Coalition Proposes Recovery Fund to Help Businesses During COVID-19 (Property/Casualty 360, May 5, 2020)

A.M. Best: BI Insurers Face ‘Existential Threat’ if Forced to Cover COVID-19 (Best’s Insurance News & Analysis, May 5, 2020)

Utah Governor Signs Bill Shielding Businesses, Property Owners from Coronavirus-Related Suits (The Salt Lake Tribune, May 4, 2020)

Managing Risk as Businesses Reopen After COVID-19 (Property/Casualty 360, May 4, 2020)

U.K. Companies to Shun Business Interruption Insurance (Financial Times, May 3, 2020)

Care Homes Seek Shield From Lawsuits

Faced with 20,000 coronavirus deaths and counting, the nation’s nursing homes are pushing back against a potential flood of lawsuits with a sweeping lobbying effort to get states to grant them emergency protection from claims of inadequate care.

The Associated Press reports that at least 15 states have enacted laws or governors’ orders that explicitly or apparently provide nursing homes and long-term care facilities some protection from lawsuits arising from the crisis. And in the case of New York, which leads the nation in deaths in such facilities, a lobbying group wrote the first draft of a measure that apparently makes it the only state with specific protection from both civil lawsuits and criminal prosecution.

Feds Consider Relaxing Infection Control in U.S. Nursing Homes (USA Today, May 5, 2020)

1,700 More Nursing Home Deaths From COVID-19 Now Reported in New York (CNY Central, May 5, 2020)

The Grim Post-COVID-19 Future for Nursing Homes (Forbes, May 4, 2020)

Data Shows Reach of COVID-19 in Illinois Nursing Homes: At Least 286 Deaths (Chicago Tribune, April 19, 2020)