While it may not seem like it for those in some northeastern states that have been staying home for weeks, the U.S. is still in the early stages of the coronavirus (a.k.a. COVID19) pandemic.
The Governors of at least 30 States have closed nonessential businesses in an effort to slow or halt the spread of the coronavirus. (footnote: “
Here are the states that have shut down nonessential businesses, ABC News, 3/26,20). This includes theaters, fitness centers, amusement parks, salons, and many retailers.
Over 150 individual retailing companies have announced chain-wide closings. (footnote: “Retailer are extending their closings indefinitely,” Forbes, 3/27/20). Many people have stopped traveling hitting airlines, hotels and resorts and cruise lines hard. R
estaurants, bars, and cafes cannot provide sit down service and while some are still providing take out and/or delivery services, many have just closed down. Some of these businesses will be closed for two months.
Clearly, the coronavirus is having a huge impact on the economy and as a result, businesses have begun to turn to their insurers to cover their losses.
The CEO of the American Property Casualty Insurance Association (APCIA) estimates that “
business interruption losses from the coronavirus just for small businesses in the U.S. could be between $220-$383 billion per month — or a quarter to half of the total industry surplus available to pay all P/C claims.” There could be as many as 39 million business interruption claims. (footnote: “
P/C Insurers Put a Price Tag on Uncovered Coronavirus Business Interruption Losses,” InsuranceJournal, 3/30/30).
Most property policies, however, only provide business interruption coverage when the property has sustained actual physical damage. Policies may also have communicable disease or virus exclusions. There have already been several coverage actions filed in multiple states as insureds seek coverage from their insurance carriers.
States have begun to react to this developing situation. Legislators have proposed bills in Massachusetts, New Jersey, New York, and Ohio
that would reform policies forcing insurers to retroactively cover business interruption claims due to the coronavirus up to the policy limits for insureds with 100 or fewer employees
. The California Department of Insurance is
requiring admitted and non-admitted carriers to provide it “with data on the volume of business interruption coverage, civil authority coverage, contingent business interruption coverage, and supply chain coverage they wrote that had not lapsed as of March 26…
as well as how many policies were issued to large and small businesses, including those with fewer than 100 employees.”(Footnote: “
California orders insurers to provide COVID-19 data,” Business Insurance, 3/
27/20)
Some have questioned as to whether these bills may unconstitutionally restrict the “freedom of contract” by effectively overriding or deleting certain insurance policy provisions. As a result, the measures, if passed, would likely be challenged in courts. (footnote: “
Coronavirus Business Loss Bills Face Constitutional Hurdles,” law360.com , 3/
2620)
And it’s not just states looking at this. Eighteen
federal legislators in the House told insurance trade groups that their members should recognize financial losses triggered by the outbreak as part of their policyholders’ business interruption coverage. The bipartisan letter was signed by twelve Democrats and six Republicans. (footnote: “
US insurers face political pressure to pay out for pandemic-related claims,” insurancebusinessmag.com 3/
27/20)
To date, these are just proposed bills. None have yet been passed into law, but given the costs cited above by the APCIA, Atwood month shutdown would cost small businesses $440 – $766 Billion. At year-end 2018, the Property/Casualty
insurance industry had $658.7 billion in
reserves to pay for all losses.(footnote: “2018 – Commentary on year-end financial results,”
Insurance Information Institute, 5/6/19)
While the proposed bills regarding business interruption coverage could have huge implications, they are not the only actions regulators are implementing to address the coronavirus.
In Wisconsin, the Insurance Commissioner has issued an order that insurers “must cover delivery services for restaurants on personal auto insurance policies and must offer coverage for hired drivers and non-owned automobiles as a rider on a restaurant’s general liability insurance if it is requested – both at no extra cost to the policyholders.” This could apply to some
13,000 restaurants in the state, that didn’t normally offer delivery services but have started to in the wake of the coronavirus pandemic. (footnote: “
S
tate orders insurers to assist restaurants offering delivery,” The Journal-Times, 3/23/20)
Perhaps to partially counter these actions, insurance trade groups have proposed the creation of a “Federal Business Interruption and Workers’ Protection Recovery Fund” that could direct money to affected businesses. (footnote: “U.S. insurers face political pressure to pay out for pandemic-related claims,”
Insurers may see additional states considering similar actions as the virus makes its way across the country. Reformation of policy defenses is just one of the emerging issues insurers and reinsurers should be monitoring. In the days of the pandemic, these reformations could be significant and even result in some insurer insolvencies. As I previously stated, the U.S. is in the early days of the coronavirus pandemic.
Retired Vice President and Emerging Issues Officer at Gen Re
