Government Affairs Update - April 3, 2020
Application of Business Interruption Insurance and Similar Coverages
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The debate over business interruption insurance and similar coverages and their applicability in the current crisis has escalated considerably in recent days. A variety of policymakers, trial lawyers, and insureds are pursing efforts to force the insurance industry to assume responsibility for COVID-19 related losses. Here are some highlights:
- No state has mandated that insurers compensate businesses for financial losses resulting from the COVID-19 crisis as part of a policyholder’s business interruption insurance coverage, but bills of this nature are being introduced in an increasing number of states. These proposals are typically based on the New Jersey bill, which would require these payments to be made to businesses with less than 100 employees (although at least one state bill would increase this threshold to less than 150 employees). In addition to the original New Jersey proposal, bills have been drafted or introduced in Massachusetts, New York, Ohio, Pennsylvania, and Rhode Island. There has also been at least informal discussion of possible legislation by some legislators or state officials in North Carolina, Texas, Virginia, and Wisconsin.
- The carrier community has estimated the potential costs to the industry if such measures were enacted into law, and the numbers are staggering. Requiring insurers to compensate businesses with fewer than 100 employees for these excluded losses (as is the case with the New Jersey and other state bills) would cost the industry $220 billion to $383 billion per month. That amount rises to $900 billion per month if the threshold is raised to 500 employees. In contrast, the P&C industry’s total surplus is only $812.2 billion (as of September 30, 2019) and would be wiped out quickly if such mandates ever took effect. Please let me know if you are grappling with this issue and have an interest in the estimated financial impact of such a proposal in your state, and we will obtain state-specific numbers for you.
- Those that recommend the retroactive application of business interruption coverage to pandemic-related losses also overlook the fact that such a proposal would not benefit most businesses. According to ISO estimates, only about 40% of all commercial property insureds and fewer than 30% of small businesses purchase the coverage.
- A handful of celebrity chefs have been among the most prominent voices calling for the industry to compensate businesses for virus-related losses. Some of these chefs have partnered with a high-profile Louisiana trial lawyer to form a coalition called the Business Interruption Group (see related links here and here) and held a conference call with President Trump earlier in the week.
- As you may recall, the NAIC released a statement last week that can be found here. Among other elements, the regulators noted that “[b]usiness interruption policies were generally not designed or priced to provide coverage against communicable diseases” and that any proposals to require the payment of claims that are not covered “would create substantial solvency risks for the sector, significantly undermine the ability of insurers to pay other types of claims, and potentially exacerbate the negative financial and economic impacts the country is currently experiencing.”
- NCOIL also sent letters to state insurance legislators across the country and to 18 Members of Congress. They stated that such proposals are “inadvisable for policy and economic reasons” and “very likely unconstitutional,” and they expressed concerns about the damage this would cause to the broader economy. NCOIL also noted that legislative action to require payment for such losses would destabilize insurance companies, “render them unable to pay claims for which they did accept the risk,” and “jeopardize the solvency of any number of insurers.”
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Cancellation and Nonrenewal Moratoriums / Premium Payment Arrangements
Most states have imposed moratoriums on policy cancellations and nonrenewals or have encouraged insurers to provide temporary accommodations or leniency for those challenged to make premium payments.
In Texas, the Department of Insurance expects all carriers to work with policyholders who may experience financial hardships due to the outbreak and encourages them to use grace periods for payments, temporary suspension of premium payments (which does not mean forgiveness of the premium), payment plans, and other actions that allow continuing insurance coverage as appropriate. Automatic bank drafts for premium payments may continue according to a carrier’s written agreement with a policyholder, unless a policyholder notifies a carrier of a specific hardship. This should be weighed against the potential disruption to a carrier’s business model or the inconvenience caused to the policyholder by multiple payments. It is the Department’s expectation that carriers will work directly with policyholders to resolve issues and minimize the effects of any penalties or additional charges.
Vacancy Clauses
IIABA has received numerous inquiries concerning vacancy clauses, which are often contained in property policies and exclude or restrict coverage for buildings that have been vacant for a specified period of time. Questions are starting to arise concerning the potential application of these provisions during the outbreak and how insurers and regulators might address this issue. IIABA is unaware of any state regulatory actions related to these clauses (such as bulletins encouraging or requiring the waiver of these clauses in certain instances), but we ask state associations to share with us any actions that have been taken by insurance departments or companies. Read more about
COVID-19 and Commercial Property Vacancy Concerns on Virtual University.
Licensing and Related Issues
As noted last week, the National Insurance Producer Registry is monitoring the specific actions states are taking with regard to licensing, continuing education, and related issues. Their chart is updated daily and is posted at the top of their website (
www.nipr.com). Here is the latest
Producer Licensing Bulletin.
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To help members prepare and respond for internal agency operations and client
coverage inquires, the association created a resource page, which will be updated
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