Many of the consequences of the COVID-19 directly affect the insurance industry and will result in an unprecedented number of claims under property, liability, workers compensation, healthcare, travel, disability, life, and other insurance products. Some of the claims will be routine, other claims (many others) wholly unique. While the insurance industry is already preparing for these legal battles, it has been surprised and dismayed by actions of certain legislators who seem intent on using the industry to soften the economic dislocation caused by COVID-19.
Federal Legislative Response
On March 18, 2020, a bipartisan group of U.S. House members has asked insurers to retroactively recognize financial losses relating to COVID-19 under commercial business interruption coverage for policyholders in a letter addressed to the leaders of the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, the Independent Insurance Agents & Brokers of America, and the Council of Insurance Agents and Brokers (Trade Group). The Trade Group responded by said that the industry was working to provide relief to policyholders, but not by creating coverage ex post facto.
The letter from the congressional representatives "urge[s] you to work with your member companies and brokers to recognize financial loss due to COVID-19 as part of policyholders’ business interruption coverage." The letter argues that American businesses are “understandably concerned about the potential financial impact the continued global spread of COVID-19 may have on their operations.” They claim that including COVID-19 related losses in business interruption coverage is "key" to continued success of U.S. businesses and the economy, generally. In the letter, the Congressional members try to establish coverage under policies they have never seen: "In many commercial property insurance policies, business interruption coverage is triggered when the policyholder sustains ‘direct physical loss of or damage to insured property." Additionally, many commercial property insurance policies provide coverage for business income losses sustained when a civil authority prohibits or impairs access to the policyholder’s premises. The Congressional members then argue that shelter-in-place orders, relating to the COVID-19 crisis, are sufficient for coverage where a policy contains cover for civil authority closures.
David Sampson, president and chief executive officer of the APCIA, Charles Chamness, president and CEO of NAMIC, Bob Rusbuldt, president and CEO of IIABA and Ken Crerar, president and CEO of CIAB, sent a joint letter in response, saying, in part:
"Standard commercial insurance policies offer coverage and protection against a wide range of risks and threats and are vetted and approved by state regulators. Business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19…. The U.S. insurance industry remains committed to our consumers and will ensure that prompt payments are made in instances where coverage exists."
It remains to be seen whether the federal government will take any legislative action. On March 18, 2020, Congresswoman Maxine Waters (D-CA) announced plans for a legislative package that would include provisions for a Pandemic Risk Insurance Act that would function as a federal reinsurance backstop by capping total losses faced by the private insurance industry, much like the Terrorism Risk Insurance Act (TRIA) or the National Flood Insurance Program (NFIP). There was no suggestion that this legislative package was conditioned on the acceptance by the industry of business interruption claims not otherwise covered.
State Legislative Response
New Jersey became the first state to introduce legislation requiring insurers to provide coverage for business interruption losses arising out of the COVID-19. While the legislation underwent an initial vote on March 16, 2020, in the New Jersey Assembly Homeland Security and State Preparedness Committee, in which it was approved to be considered on an emergency basis, the legislation was then shelved on March 19, 2020. Assembly Bill No. 3844 (Bill No. 3844), would apply to businesses with less than 100 eligible employees and provides that “every policy of insurance for loss or damage to property, which includes the loss of use and occupancy and business interruption, in force on the date of the executive order [Executive Order 103, dated March 9, 2020], shall be construed to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic.” The coverage provided under the bill would be subject to the policy’s limits of liability and apply to losses incurred during the period of the state of emergency, beginning on March 9, 2020.
Insurers reimbursing policyholders for business interruption claims under the Bill No. 3844 would then apply to the New Jersey Commissioner of Banking and Insurance for relief and reimbursement from funds made available for this purpose. Not surprisingly, the bill contemplates that such funds for reimbursement to insurers would be paid through future special assessments on insurance companies. Bill No. 3844 is seemingly designed to override application of any existing virus exclusion to business interruption losses caused by COVID-19. It is not clear whether Bill No. 3844 similarly seeks to supersede the requirements that policyholders demonstrate “physical loss” or “physical damage” as a result of a covered cause of loss to recover under a commercial property insurance policy. For the now, Bill No. 3844 has been shelved. We will update you on any future developments.