One of the largest
car-insurance companies in the country and a smaller Midwestern auto insurer
are refunding hundreds of millions of dollars to their policyholders, citing a
dramatic drop in accident claims from Americans hunkered down in their homes, The
Wall Street Journal reports.
PathogenRX, a parametric insurance policy
developed by broker Marsh, Munich Re, and technology firm Metabiota, is designed
to provide business interruption insurance in the event of a pandemic, Insurance
When the coronavirus outbreak forced the
cancellation of Wimbledon it looked like game, set, and match against the All
England Club. It turns out, The Times reports, that the club has
insurance that covers infectious diseases and is putting together a claim
potentially in excess of £100 million.
World insurers told
governments on Monday that making them pay out on losses suffered due to the
coronavirus that were not covered by policies risked destabilizing the
insurance industry, Reuters reports.
Insurance brokers say viruses and pandemics are specific
exclusions in many such policies, which are often included with standard
property and casualty coverage. But whether COVID-19 is the basis for a
business interruption claim remains an open question as government leaders and
the plaintiffs’ bar wrestle over the issue.
COVID-19 could produce a big increase in social inflation,
according to A.M. Best. The reason: expectations that businesses will sue their
insurers in an attempt to access their business interruption coverage for
losses relating to the coronavirus pandemic.
infected 8,000 people and led to millions of dollars in business-interruption
insurance claims – including a $16 million payout to a single hotel chain. As a
result, The Washington Post reports, many insurers added exclusions to
standard commercial policies for losses caused by viruses or bacteria.
The Federal Emergency Management Agency (FEMA)
announced that it will extend the grace period to renew flood insurance
policies to help policyholders affected by the coronavirus (COVID-19) pandemic.
FEMA said it would push back the grace period from 30 days to 120 days.
First responders are preparing for raging wildfires that they
expect will consume thousands of acres and drive some residents from their
homes in upcoming months. But this year, CNBC reports, preparations have
stalled. The coronavirus pandemic has hit the country’s already strained
emergency services, raising concerns over inadequate disaster relief during
peak fire season.
Florida’s Chief Financial Officer has ordered the Division of Risk
Management to fulfill workers’ compensation claims for frontline employees who
work for the state, the Tampa Bay Times reports. But the order doesn’t
include similar workers in the private sector.
An Insurance Journal
article estimates that business
interruption losses from the coronavirus just for small businesses in the U.S.
could be as much as $383 billion per month, or 50 percent of the total
available for the industry to pay all claims.
According to American Property Casualty Insurance Association (APCIA),
that is 10 times the most claims ever handled by the industry in one year. The
industry processed more than three million from the 2005 hurricane season that
included Hurricanes Katrina, Rita, Wilma and several other storms, the trade
president and CEO David Sampson said the coronavirus loss estimate assumes as
many as 30 million claims would be filed by small businesses that suffered
losses from the pandemic.
the industry has little business interruption coverage to offer for the
pandemic, Sampson said the APCIA is willing to discuss “forward-looking answers
that speed economic recovery from future pandemics” with lawmakers.
Insurers back COVID-19 fund
The Insurance Journal further reports that a coalition of 36 business groups, including the insurance sector, has sent the Trump administration and Congressional leaders a letter expressing support for a proposed COVID-19 Business and Employee Continuity and Recovery Fund, a new federal relief fund intended to help businesses and workers suffering losses from coronavirus pandemic shutdowns. The fund aims to help businesses retain and rehire workers, maintain employee benefits, and pay such operating expenses as rent. It also may provide money for payroll, lost income of sick employees, and lost business revenues.
and other businesses would help create a process for quickly reviewing and
processing applications filed by companies seeking help. The relief fund would
be managed by a special administrator within the Treasury.
The COVID-19 pandemic is unprecedented in many ways. The human toll is first and foremost on our
minds (as it should be), but as an insurance professional, I’ll stay in my lane
and address one of the economic impacts – business interruption.
Businesses Looking to Mitigate Losses
Among the ways in which we are in uncharted territory is the
scale of how businesses are impacted. Unsurprisingly,
in reaction to slow-downs and shut-downs in many business sectors, businesses
are looking for ways to mitigate their losses or recover lost revenue. One avenue that businesses are exploring is
the availability of business interruption coverage under their property
insurance policies. Other potential
claims include communicable disease coverage found in some policies purchased
by hotels or event cancellation insurance, but those claims are beyond the
scope of this article.
Property insurance was designed originally to cover fire losses
and similar losses of physical property following the Great
London Fire of 1666. Of course,
property policies have evolved since then to cover additional risks including,
in many instances, business interruption losses caused by physical damage to property. 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. But here’s
the rub. Are the business interruptions related
to COVID-19 caused by physical damage to property?
Policy Language Will Control
The language of an insured’s policy will control whether
COVID-19 interruptions are covered. Unfortunately,
much of the media commentary on business interruption claims related to
COVID-19 has inappropriately treated all insurance policies as though they are identical. Policyholders have a wide array of different
policies they can purchase. For example,
some policyholders have purchased an ISO Businessowners Policy (BOP) with
standard terms and exclusions, others have purchased all-risk policies, and
others have purchased a variation of these types.
This commentary does not try to provide sweeping
pronouncements or give the impression that a single outcome will apply equally
to all situations. Instead, the
following is a starting point for a more detailed analysis under individual
circumstances. Details matter and the
analysis for a particular claim must start with the policy terms and facts
specific to that policyholder.
Is Coverage Triggered?
There have already been a handful of lawsuits filed related
to business interruption claims, some of which suits were filed before the
insurers even denied a claim. For
example, the Oceana suit filed by a restaurant in NOLA
and a suit filed by chef Thomas
Keller, owner of The French Laundry in California. Also, a group of tribal
nations that own casinos filed a lawsuit in Oklahoma and the owner of a
restaurant/movie chain filed suit in Illinois. Policyholders in these lawsuits are seeking a
ruling that they are entitled to coverage for losses sustained during their current
shutdowns. A review of the policies at
issues underscores the point made above – the outcomes in these suits and others
may not all be the same because different policies are at issue.
Nonetheless, there are some overall issues to consider. While the scope of business shutdowns is
unprecedented, we do have similar experiences as a guide, albeit on a smaller
scale, that may indicate how the current COVID-19 business interruption claims
may play out.
The threshold issue will be whether the insureds can prove
that their business losses are caused by “physical damage to property,” which
is the standard language in many business interruption policies. While the concept of causation focuses on
assigning blame for an accident in some legal contexts, it is important to
realize that in the insurance context the issue of causation is different.
In insurance, the concept of causation addresses whether
a particular loss triggers coverage, not who is responsible for causing the
loss. In this regard, we can replace
the word “causation” with “trigger.” So,
the question with the COVID-19 losses becomes, can these policyholders prove
that their business interruption losses were triggered by physical damage to
property akin to the fire loss damage mentioned above?
A series of cases from Minnesota demonstrates how the
COVID-19 business interruption claims might be resolved.
Where there is direct physical loss to property, such as
contaminated oats that could not be sold or a building rendered useless because
of asbestos contamination, the courts have found that business interruption coverage
was triggered. That is, these losses fit
the definition of direct physical loss to property. General Mills, Inc. v. Gold Medal Ins. Co.,
622 N.W. 2d 147 (Minn. Ct. App. 2001); Sentinel Mgmt. Co. v. New Hampshire Ins.
Co., 563 N.W. 2d 296, 300 (Minn. Ct. App. 1997).
But, where an earthquake caused a power loss in two
Taiwanese factories, and as a result, those factories could not supply products
to the Minnesota insured, the court found that the outages caused no injury to
the Taiwanese factories other than a shutdown of manufacturing operations, and
that this did not constitute “direct physical loss or damage.” Pentair, Inc. v. Am. Guar. & Liab. Ins.
Co., 400. F.3d 613 (8th Cir. 2005).
More recently, a federal appellate court considered a claim
related to mad cow disease. Source Food was
a company that sold products containing beef tallow. The USDA prohibited the importation of the
tallow from Canada in 2003 after a cow in Canada tested positive for mad cow
disease. The border was closed to Source Food’s sole supplier of beef product
in Canada. There was no evidence that the beef product specifically destined
for Source Foods was contaminated by mad cow disease, but after the border was
closed to the importation of beef products, Source Food was unable to fill
orders and lost business as a result. Source
Food submitted a business interruption claim.
It argued that the closing of the border caused direct physical loss to
its beef product because the beef product was treated as though it were
physically contaminated by mad cow disease and lost its function. But, the court held that to characterize
Source Food’s inability to transport its truckload of beef product across the
border and sell the beef product in the United States as direct physical loss
to property would render the word “physical” meaningless. Additionally, the
policy’s use of the word “to” in the term “direct physical loss to
property” was significant. The court explained
that the policy did not cover loss “of” property, it covered loss “to”
property. As a result, the cause of Source
Food’s business interruption was the government shutdown of the border, not
direct physical loss to its property. Source
Food Tech., Inc. v. U.S. Fid. & Guar. Co., 465 F.3d 834 (8th Cir. 2006).
What About the Current Claims?
Here, are the business interruptions related to COVID-19 the
direct result of the government restrictions on businesses or are they due to
the physical loss to their property?
Under the reasoning of the Source Food case, much of the current
business interruption claims would seem not to trigger the standard business
interruption coverage in a commercial business interruption policy or BOP. As cautioned above, this is not a universal
outcome under all policies. For example,
an all-risk policy would generally 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. While it is possible that an all-risk policy
could specifically exclude losses due to civil authority orders, that is not a
standard exclusion in all-risk policies.
With regard to business interruption policy exclusions,
there are exclusions to consider even if a policyholder can meet its burden to
trigger coverage under the standard business interruption policy. For example, some policies have an exclusion
that precludes coverage for losses that result from mold, fungi or bacteria. However, because COVID-19 is a virus, that
exclusion may not apply. But, other
policies have exclusions for viruses, diseases or pandemics. That type of exclusion appears problematic
for policyholders, even those who satisfy the initial question of
The result may not be all-or-nothing. Might claims be partially covered? It is possible. For example, if a restaurant were shut down
because it had been contaminated by COVID-19 and needed to be cleaned and closed
for a two-week period to ensure no lingering virus remained, that period of
shutdown might be considered direct loss to property even though the shut-down
period after the cleaning period was not covered because the following shutdown
period was attributable to a government order.
Likewise, there may be a different analysis applied to some business
interruption claims that result from supply chain impacts. However, claims related to supply chain
disruptions are beyond the scope of this article.
Legislation and Duties of Insureds
It is notable that legislators in several states recently
proposed bills that would retroactively void the exclusions that would apply to
COVID-19 business interruption claims. Although
well-intentioned, these bills are deeply troubling because, among other things,
they could severely impact the financial stability of the insurance market,
which took in premiums based on such claims being excluded. And, because the legislation would not help
the 60 percent of businesses that do not purchase business interruption
coverage, the risk of crippling the insurance market is even more questionable.
Moreover, these bills would address only
the exclusions and do nothing to impact the initial question of whether
policyholders can trigger coverage.
Nevertheless, if a policyholder believes it may have a claim under its insurance policy(ies), it should provide prompt notice to its insurer(s) so that 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.
Michael Menapace is a Triple-I Non-Resident Scholar, a partner at Wiggin and Dana LLP, and a professor of Insurance Law at the Quinnipiac University School of Law.
As quickly as the coronavirus
is spreading, so is the amount of published information available to help
insurers and their customers navigate this confusing environment. But
separating information from misinformation and the truly useful from the merely
“nice to know” can be a challenge.
As a service to our readers,
Triple-I Blog is aggregating and sharing some of these resources. We’re
gathering links and descriptions into blog posts like this one and have
established a page on our website – COVID-19: Issues and Impacts – that categorizes the posts and makes them easier to
As part of its effort to provide information on workers comp legislative
activity, NCCI also monitors workers compensation-related bills in all jurisdictions
and the federal government. You can follow such activity here.
One-year projected costs in the national commercial
market range from $34 billion to $251 billion for testing, treatment, and care specifically
related to COVID-19;
Potential COVID-19 costs for 2020 could range from
about 2 percent of premium to over 21 percent if the full first-year costs of the
epidemic had been priced into the premium;
Health insurers are setting rates for 2021. If
they must recoup 2020 costs, price for the same level of costs next year, and protect
their solvency, 2021 premium increases to individuals and employers from
COVID-19 alone could range from 4 percent to more than 40 percent.
Two recently published pieces provide historical comparisons
of COVID-19 with the 1918 global flu pandemic:
Airlines have had to dramatically cut flight schedules due to
the coronavirus pandemic, and some experts believe this has begun to hurt
It turns out that forecasting models depend heavily on data collected by aircraft. The European Centre for Medium-Range Weather Forecasts (ECMWF) said this week that the number of aircraft reports received worldwide declined 42 percent from March 1 to 23. In less than a month, the number of aircraft reports over Europe received and used by the ECMWF fell 65 percent.
Meteorological Society study found that using aircraft
observations reduced six-hour forecast errors in wind, humidity, and
temperature by 15 percent to 30 percent across the United States.
This is no small matter. The more accurately experts can predict impending weather, the better prepared individuals, communities, and businesses can be. Less accurate forecasts can lead to a lack of preparation and bad weather-related decisions. From an insurance perspective, this can result in larger claims and losses.
So, late last night, worried about yet another negative implication of coronavirus, I fired off an e-mail to Triple-I non-resident scholar Phil Klotzbach. Dr. Klotzbach is a research scientist in the Department of Atmospheric Science at Colorado State University. He has published over two dozen articles in peer-reviewed journals and is quoted regularly by the Weather Channel, Forbes, The New York Times, USA Today, and The Wall Street Journal. He and his team also publish an annual forecast for the Atlantic hurricane season.
True to form – and thanks, in part, to the two-hour
time difference – he responded almost immediately:
“I don't think it's going to be a huge reduction in model skill, but the ECMWF estimates that removal of all aircraft can reduce prediction ability at upper levels in the atmosphere (~30000 feet) by around 10-15% for 12-hour predictions. Subtracting aircraft-provided information from historical model forecasts increased errors by about 3% for surface pressure. The lack of aircraft data has a greater impact on shorter-term forecasts (e.g., <1 day) than it does on longer-term forecasts (e.g., 5-7 days), although some degradation of the forecasts continues even at longer-range timescales.
Of course, some aircraft will still be flying, and some of the loss may be mitigated by other data sources, such as additional launches of weather balloons.”
In other words, the reduction in aircraft data is likely to degrade accuracy of same-day and longer-term forecasts a bit, and some of that degradation will likely be offset by other data resources the forecasting community brings to bear.
Amid everything we need to be concerned about while
dealing with the impacts of COVID-19, the reliability of weather forecasting
isn’t yet at the top of the list.
The Insurance Information Institute invited its members to a webinar titled “Covid-19’s Impact on Health, the Economy and Growth” on March 5 at 11:00 a.m. EST presented by Triple-I Vice President and Senior Economist Michel Léonard, PhD, CBE.
Dr. Lèonard will discuss the following key points:
• Economic impact likely to continue into Q3/Q4 2020 and 2021 • Could reduce global growth by as much as 1 percent and delay recovery by up to 12 months • Fiscal and monetary policy, rates cuts, unlikely to be effective • Insurance industry to see higher claims, reduced premium growth
He will also preview the Global Macro and Industry Outlook report before it is made available to the public.
To find out more about the benefits of Triple-I membership click here.
The Covid-19 coronavirus death toll has passed 1,300 and will likely continue to climb, with more than 60,000 cases reported worldwide. The loss of life and costs of identifying and caring for the sick are compounded by the following considerations:
China, where the virus originated and remains most prevalent, is the world’s largest producer of active pharmaceutical ingredients. In 2018, Politico reports, citing U.S. Commerce Department data, the country accounted for:
percent of ibuprofen imports
percent of hydrocortisone imports
percent of acetaminophen imports
percent of penicillin imports, and
percent of heparin imports.
China also is a major supplier of disposable medical devices like
syringes and gloves, as well as surgical equipment. Michael Alkire, president
of healthcare supply chain consultant Premier, told Modern Healthcare it’s hard to estimate
how many of these goods come from China.
“There are critical pieces of upstream supply chain information
that are unknown, including raw material suppliers, third party and contract
manufacturers, sterilizers and more,” Alkire said. “Because reporting
of this information is completely voluntary, most won’t do so until it becomes
an industry-wide expectation and best practice.”
Any supply-chain disruptions could affect health care worldwide and lead to liability
“The good news is that most of the people dealing with China tend to
have inventory,” said James Bruno, president of consulting firm Chemical and Pharmaceutical Solutions.
“But if this doesn’t straighten out in the next three months, we could have
some real problems with supply disruption.”
Health-care facilities and other business can become points of infection. Illnesses contracted in such locations can lead to workers comp claims, as well as claims alleging insufficient care was taken to protect customers and vendors from infection. Health workers who contract the virus on the job would likely be eligible for workers comp benefits, though compensability will be determined by the individual situation, policy wording, and laws of the relevant jurisdictions.
U.S. manufacturers rely on China to supply many industrial components and as a market for their own products. If the virus leads to closures of major ports, businesses in the affected countries could cancel contracts with or default on payments to their foreign counterparties. Contract frustration insurance may cover costs associated with such cancellations, depending on circumstances and the terms of their policies
Auto manufacturing could be an early industry to suffer. China shipped
nearly $35 billion of auto parts in 2018, according to United Nations data.
About $20 billion of Chinese parts were exported to the United States alone in
2018, according to the Commerce Department’s International Trade
Administration. Supply disruptions lasting more than a few months could add
momentum to rising auto repair costs.
Event and travel cancellations hurt local and national economies. Concerts and other public events in China have been cancelled over the virus, but its impact on tourism isn’t confined to that country. The contagion emerged right before Lunar New Year – when many Chinese typically travel in China and abroad.
China accounts for more than 10 percent of global tourism, Wolfgang Arlt, founder of the China Outbound Research Institute, said in an interview with National Public Radio. While the most popular destinations for Chinese visitors are in Asia, Arlt said, Paris, Sydney, and New York City also are favorites. That helped make China the biggest international tourism spender in 2018, pumping $277 billion into the travel industry, according to the United Nations World Tourism Organization.
Due to China’s outsized role in global tourism, Covid-19 could affect travel, hospitality, and tourism-dependent businesses around the world. With cruise ships quarantined after the disease was detected, cruise lines may have to deal with longer-term impacts on their businesses, as well as immediate ones related to passenger care and vessel decontamination.
Past outbreaks, such as SARS, Ebola, and Zika, have led many insurers to exclude infectious diseases from coverage in their policies. While specific policies for infectious diseases have been developed, companies reportedly have been slow to purchase them.
Faced with Covid-19 coronavirus, people – as they tend to during infectious outbreaks – have become concerned about whether and to what extent their insurance will cover costs associated with the event. In the case of travel insurance, there’s good, bad, and ambiguous news.
If you contract coronavirus before you travel or while you’re traveling and have a standard policy that includes coverage for medical treatment and medical evacuation, your care probably will be covered. The “probably” is due to the fact that many insurers set a deadline – a date before which you might be covered but after which you won’t be. That’s because Covid-19 is now a “foreseen circumstance” — people now know about it.
Trip cancellation can be more complicated. Many policies exclude losses caused by disease outbreaks. Cancelling a trip simply because you don’t want to risk infection likely won’t be covered by a standard policy.
What if you get sick and need to cancel your trip? You might be covered, depending on the insurer and a long list of conditions. For example, an illness that would be covered often requires a medical professional to confirm that the policyholder was, in fact, too sick to travel.
A cancel for any reason (CFAR) policy can help you recoup part of your expense, but they’re pricey: usually around
10 percent of the cost of your trip, compared with four to six percent for a
Do these exclusions and uncertainties mean medical travel insurance is
a waste of money?
Not at all.
As I’ve written before, there are many ways one can be injured, fall ill, or die abroad – and your regular medical coverage may not work the same way abroad as it does at home. Since we’re talking about infectious diseases, take a look at the recent snippet below from the CDC website for a glimpse at some areas of concern. The list is always changing.
With travel policies – as with all other forms of insurance – it’s important to understand what’s covered and what isn’t and talk with your agent to be sure you’re getting the coverage you need. You also should thoroughly research your destinations and planned activities for possible exclusions.
In a previous article, we discussed how personal insurance policies address communicable diseases and epidemics. In this article, we’ll look at how commercial insurance policies handle these issues.
Between 1918 and 1919 the so-called Spanish influenza pandemic* killed at least 50 million people worldwide and infected about 500 million people – or about 1/3 of the entire world’s population at the time.
While the Spanish flu’s destructiveness has been an outlier over the last several decades, epidemics and pandemics on a smaller scale do still happen (avian flu, swine flu, Ebola, etc.).
How could disease outbreaks impact commercial property and general liability insurance?